TIDMAAL
RNS Number : 6444I
Anglo American PLC
27 July 2012
27 July 2012
Anglo American announces EBITDA(1) of $4.9 billion for the half year
Financial results impacted by weaker prices
-- Group operating profit(2) of $3.7 billion
-- Underlying earnings(3) of $1.7 billion and underlying EPS of $1.38
-- Profit attributable to equity shareholders(4) of $1.2 billion
-- Net debt(5) of $3.1 billion at 30 June 2012 (pro forma net debt of $10.0 billion)(6)
Strong operational and strategic delivery
-- Strong production performance across iron ore, metallurgical
coal, thermal coal, copper and nickel through successful project
execution and asset optimisation
-- Kumba Iron Ore - record production of 21.6 Mt and record export sales of 20.7 Mt, up 13%
-- Metallurgical Coal - record production of export metallurgical coal of 8.6 Mt, up 40%
-- De Beers acquisition has met all regulatory approvals and the
transaction is expected to complete in Q3 2012
-- Increased shareholding in Kumba Iron Ore by 4.5% to 69.7% for $948 million
-- Agreed to acquire 58.9% interest in Revuboe high quality
metallurgical coal resource in Mozambique for $555 million
Projects delivered and ramping up to drive high quality
production growth
-- Kolomela iron ore - 3.3 Mt produced in H1 2012; on schedule to produce at least 6 Mt in 2012 and full capacity of 9 Mt in 2013
-- Los Bronces copper - 92% of design capacity achieved; on
track to complete ramp-up by Q4 2012
-- Barro Alto nickel - H1 2012 production of 12 kt; targeting full production in early 2013
-- Zibulo thermal coal - ramp-up on track to full capacity of 6.6 Mtpa
Projects in execution progressing
-- Minas-Rio 26.5 Mtpa iron ore project - licensing and
construction progress hindered by legal actions
-- Grosvenor 5 Mtpa metallurgical coal project - engineering
work 50% complete as of July 2012; earthworks under way
Disciplined capital allocation delivering shareholder value
-- Target to maintain a strong investment grade rating
-- Committed to return cash to shareholders on a sustainable
basis - interim dividend increased by 14% to US 32 cents per
share
-- Sequencing investment in line with resulting funding capacity
to focus on the most value accretive and lowest risk growth
options
Safety
-- 7 employees lost their lives in work related incidents -
safety programmes continuing to drive for zero harm
-- 37% improvement in lost time injury frequency rates since 2007
6 months 6 months
HIGHLIGHTS ended ended
30 June 30 June
US$ million, except per share amounts 2012 2011 Change
---------------------------------------------- --------- -------- --------
Group revenue including associates(7) 16,408 18,294 (10)%
Operating profit including associates
before special items and remeasurements(2) 3,724 6,024 (38)%
Underlying earnings(3) 1,691 3,120 (46)%
EBITDA(1) 4,942 7,112 (31)%
Net cash inflows from operating activities 2,478 3,986 (38)%
Profit before tax(4) 2,942 6,571 (55)%
Profit for the financial period attributable
to equity shareholders(4) 1,207 3,988 (70)%
Earnings per share (US$):
Basic earnings per share(4) 0.98 3.30 (70)%
Underlying earnings per share(3) 1.38 2.58 (47)%
Dividend per share 0.32 0.28 14%
---------------------------------------------- --------- -------- --------
(1) Earnings before interest, tax, depreciation and amortisation
(EBITDA) is operating profit before special items, remeasurements,
depreciation and amortisation in subsidiaries and joint ventures
and includes the attributable share of EBITDA of associates. See
note 5 to the Condensed financial statements.
(2) Operating profit includes attributable share of associates'
operating profit (before attributable share of associates' interest,
tax and non-controlling interests) and is before special items and
remeasurements, unless otherwise stated. See notes 2 and 3 to the
Condensed financial statements. For the definition of special items
and remeasurements see note 4 to the Condensed financial statements.
(3) See note 9 to the Condensed financial statements for basis of
calculation of underlying earnings.
(4) Stated after special items and remeasurements. See note 4 to
the Condensed financial statements.
(5) Net debt includes related hedges and net debt in disposal groups.
See note 12 to the Condensed financial statements.
(6) Pro forma net debt is net debt adjusted for the estimated effect
of the acquisition of an additional 40% interest in De Beers ($6.3
billion including De Beers net debt as at 30 June 2012) and the
acquisition, announced on 24 July 2012, of a 58.9% interest in the
Revuboe metallurgical coal project in Mozambique ($0.6 billion).
(7) Includes the Group's attributable share of associates' revenue
of $2,730 million (six months ended 30 June 2011: $3,057 million).
See note 2 to the Condensed financial statements.
Cynthia Carroll,Chief Executive, said: "Anglo American has
continued its strong operational performance of 2011 into the first
half of 2012, delivering increased volumes of thermal coal, copper
and nickel and record volumes of iron ore from Kumba in South
Africa and export metallurgical coal from Australia and Canada. As
a result of markedly weaker commodity prices experienced during the
first half of the year, in addition to ongoing input cost pressures
across the portfolio, Anglo American reported an operating profit
of $3.7 billion, a 38% decrease. EBITDA decreased by 31% to $4.9
billion and underlying earnings decreased by 46% to $1.7
billion.
Successful project execution, from the three new mining
operations delivered and commissioned during 2011, contributed to
production growth and generated more than $650 million of operating
profit. Growth projects delivered in 2011 continue to ramp up well,
with Los Bronces expansion achieving 92% of nameplate capacity
during the second quarter, while Kumba's Kolomela mine has exceeded
expectations by producing in excess of 6 Mt on an annualised basis
during the first half of the year - both considerable achievements
and ahead of schedule.
Beyond organic growth, we have simplified our minority ownership
of De Beers through the acquisition of the Oppenheimer family's 40%
interest, for which we have now received all the regulatory
approvals. Our partner in De Beers and in Debswana, the Government
of the Republic of Botswana (GRB), has the opportunity to decide
whether or not to increase its interest in De Beers. Irrespective
of its decision, the GRB is firmly committed to De Beers and our
interests in the continuing success of the world's leading diamond
company are well aligned. We have also chosen to increase our
shareholding in Kumba Iron Ore, lifting our ownership by 4.5% to
69.7%, reflecting our view on the quality of the business and its
highly attractive performance and growth profile.
To ensure that we continue to deliver shareholder value and
returns through the cycle, we will maintain our prudent and
disciplined approach to managing our businesses and allocating
capital. Despite the macroeconomic uncertainty and likely sustained
higher capital and operating cost environment for the industry, we
are committed to returning cash to shareholders and have increased
our interim dividend by 14% to US 32 cents per share.
We continue to work through all our projects in the construction
phase, including Minas-Rio. Minas-Rio is one of the largest and
most complex projects in the world, and certainly in Brazil. We
have been working to secure permits and licences required for the
project in a challenging and changing regulatory environment.
Despite being granted further major licences during the period, we
continue to face legal challenges to those licences awarded by the
various regulatory bodies. We have deployed additional resources to
strengthen the project management and permitting teams to resolve
these issues but, until they are cleared, we cannot as yet with
confidence determine the date for first production. As a guide,
however, if we clear all the current impediments by the end of 2012
and experience no additional major unexpected interventions, we
anticipate being in a position to ship our first ore in the second
half of 2014. Minas-Rio is a high quality iron ore resource with
very significant expansion potential and, despite current
challenges, will prove to be a major contributor to the Group for
many decades to come.
We are sequencing investment by prioritising capital to
commodities with the most attractive market dynamics and projects
with the lowest execution risks. The 5 Mtpa Grosvenor metallurgical
coal project in Australia is well under way, with engineering work
now 50% complete as of July 2012 and earthworks have begun. I am
also delighted that we have reached a successful and mutually
beneficial conclusion to our community dialogue process with the
local community at our Quellaveco copper project in southern Peru.
This is a clear demonstration of the value we place on engagement
and the development of sustainable communities as a prerequisite to
our social licence to operate; we look forward to gaining our
outstanding permits prior to the Board's review of the project. In
Platinum, we are progressing with our review of the shape and scale
of the business in order that we achieve satisfactory returns over
the long term. As previously stated, we expect to complete the
review by the end of the year.
Our safety performance is my absolute priority and the efforts
that we have made across our safety related programmes continue to
have a positive effect. We still, however, have a long way to go in
order to sustain the progress we have made since 2007, both in
terms of lives lost and lost time injuries sustained. I am deeply
saddened that seven of our colleagues have lost their lives between
January and June, all at our Platinum and Thermal Coal
businesses.
Short term prospects for the world economy have deteriorated in
recent months. Alongside continuing structural problems in the euro
zone, economic growth has slowed in the US and major emerging
economies, such as China, India and Brazil, albeit from high
levels. Yet we see more resilient trends in the medium to longer
term. Long term supply constraints across many commodities,
combined with continuing industrialisation and urbanisation trends
in key growth markets should provide considerable support for
prices."
Review of the six months ended 30 June 2012
Financial results
Anglo American's underlying earnings for the first half of 2012
were $1.7 billion, 46% lower than the same period in 2011, with an
operating profit of $3.7 billion, down 38% from $6.0 billion.
Weakening global economic growth negatively impacted the majority
of commodity prices during the period which, when coupled with
increasing unit costs in most of the Group's operations, compressed
margins.
Iron Ore and Manganese recorded an operating profit of $1,779
million, 28% lower than the corresponding period in 2011. This was
driven by lower iron ore prices, which decreased by 21% at Kumba
Iron Ore (Kumba), together with cost increases which were partly
offset by a 13% increase in export sales volumes.
Metallurgical Coal delivered an operating profit of $159
million, a 68% decrease on the first half of 2011, primarily due to
the impact of lower realised export prices, partly offset by higher
sales volumes.
Thermal Coal's operating profit of $433 million was 17% lower
than the equivalent period in 2011 as a result of decreasing
realised prices partly offset by higher sales volumes, supported by
record half year production at Cerrejon.
Copper delivered an operating profit of $978 million, 30% lower
than the first half of 2011, underpinned by a 12% lower realised
average copper price combined with lower grades. Sales volumes
increased by 14% following the ramp-up of the Los Bronces expansion
project.
Nickel reported an operating profit of $58 million, 38% lower
than the first half of 2011. Operating profit includes a self
insurance recovery of $57 million and was significantly impacted by
a 28% decrease in prices coupled with high inflation in Venezuela.
Profit from Barro Alto project continues to be capitalised during
ramp-up.
Platinum generated an operating profit of $84 million, 85% lower
than the corresponding period in 2011, following lower prices and
sales volume. A positive stock adjustment of $172 million relating
to the annual physical count contributed to the operating
profit.
Diamonds recorded an attributable operating profit of $250
million, 44% lower than the first half of 2011 due to lower average
prices, reflecting lower demand and changing product requirements
from customers.
Other Mining and Industrial's operating profit was $180 million,
32% higher than the first half of 2011 attributable to the increase
in Amapa's operating profit which is now included as part of Other
Mining and Industrial. Amapa generated an operating profit of $112
million compared to $45 million in 2011 due to the reversal of
penalty provisions, which were in place at the end of 2011, as a
result of contract re-negotiations. Copebras' operating profit was
46% lower owing to lower international fertiliser prices, while
Catalao increased operating profit by $24 million due to increased
production. Tarmac's operating loss of $24 million and Scaw South
Africa's operating profit of $28 million were both in line with the
same period in 2011.
Production
Production across most of the Group's operations increased
compared to the same period in 2011. Successful project execution
and asset optimisation delivered volume growth in iron ore,
metallurgical coal, thermal coal, copper and nickel. Total Group
iron ore production increased by 15% to 24.6 Mt due to the ramp-up
of the Kolomela mine and production improvements at Amapa. The
Group's Metallurgical Coal production increased by 40% to 8.6 Mt,
benefiting from both productivity improvements and a reduction in
weather related stoppages.
Copper production increased by 14% to 329,500 tonnes, driven by
the ramp-up at the Los Bronces expansion project, partly offset by
expected lower ore grades at Collahuasi. Nickel production
increased by 80% to 22,900 tonnes due to the ramp-up from Barro
Alto. Platinum equivalent refined production was marginally ahead
of 2011 following shorter and more localised safety-related
stoppages during the first half of the year. Production at De Beers
decreased by 13% to 13.4 million carats. In light of prevailing
rough diamond market trends, and in keeping with De Beers' stated
production strategy from the fourth quarter of 2011, operations
continued to focus on maintenance and waste stripping backlogs.
Capital structure
Net debt, including related hedges, of $3,124 million was $1,750
million higher than at 31 December 2011, and $3,670 million lower
than at 30 June 2011.
During the period, the Group issued corporate bonds with a US$
equivalent value of $2.8 billion in the US, European and South
African markets. In addition, 99% of the Group's $1.7 billion
convertible bonds were converted into equity, resulting in the
issue of 62.5 million new shares, a reduction in net debt of $1.5
billion, and an aggregate interest saving of $0.3 billion compared
to the cost of holding the bonds to maturity.
Dividends
An interim dividend of 32 US cents per share (30 June 2011: 28
US cents per share) has been declared, signalling the Board's
commitment to have a disciplined balance between the maintenance of
an investment grade rating, returns to shareholders and sequencing
of future investment in line with resulting funding capacity.
Anglo American's dividend policy is to provide a base dividend
that will be maintained or increased through the cycle.
Project delivery to continue to drive high quality production
growth
Anglo American's extensive portfolio of undeveloped world class
resources and pipeline of growth opportunities projects spans its
chosen core commodities. It offers considerable options for
sequencing of investment in line with the Group's view of market
dynamics and the geopolitical environment. Capital will be
prioritised to focus on the most value accretive and lowest risk
growth options, taking into consideration the Group's resulting
funding capacity.
Anglo American commissioned three major new mining operations on
or ahead of schedule during 2011 - the Kolomela iron ore mine in
South Africa, the Los Bronces copper expansion in Chile and the
Barro Alto nickel operation in Brazil. These three new operations
are ramping up successfully and have contributed to the Group's
strong production performance during the first half of 2012.
Beyond the near term, the Group has a number of projects in the
execution phase, as summarised below, and is progressing towards
approval decisions in relation to the development of further high
quality growth projects, including the 225 ktpa Quellaveco
greenfield copper project in Peru.
Anglo American has a clear strategy of deploying its capital in
those commodities with strong fundamentals and the most attractive
risk-return profiles that deliver long term, through-the-cycle
returns for its shareholders. The Group has developed a portfolio
of world class operating assets and development projects with the
benefits of scale, expansion potential and attractive cost position
and capital intensity. Anglo American's project management systems
and processes ensure close collaboration between the Group's
technical and project teams to execute projects effectively.
Minas-Rio
The Minas-Rio iron ore project in Brazil is expected to produce
26.5 Mtpa of iron ore in its first phase of development. Project
progress has been affected by ongoing licensing challenges which
have impacted the completion of the project. Subject to resolving
the existing licensing challenges and not encountering additional
unexpected interventions, first ore on ship is now anticipated to
be in the second half of 2014.
Pre-feasibility studies for the expansion phases of the
Minas-Rio iron ore project commenced during 2011, supported by an
estimated resource base of 5.8 billion tonnes, as detailed in our
annual resource statement.
Cerrejon P500 expansion - on track
In Colombia, the first phase of the brownfield expansion
project, P500 Phase 1, aims to maximise value by increasing export
thermal coal production capacity by 8 Mtpa to 40 Mtpa (100% basis),
through additional mining equipment and the de-bottlenecking of key
logistics infrastructure along the coal chain. The project was
approved by Cerrejon'sshareholders in the third quarter of 2011.
The project is progressing well and is expected to be delivered on
schedule and on budget. First coal is targeted for the fourth
quarter of 2013, with full production by the end of 2015. Further
expansion opportunities, in the form of P500 Phase 2, are currently
under investigation.
Grosvenor - on track
The brownfield Grosvenor metallurgical coal project is situated
immediately to the south of Anglo American's Moranbah North
metallurgical coal mine in the Bowen Basin of Queensland,
Australia. The mine is expected to produce 5 Mtpa of high quality
metallurgical coal from its underground longwall operation over a
projected life of 26 years and to benefit from operating costs in
the lower half of the cost curve.
Grosvenor forms a major part of the Group's strategy of tripling
production of metallurgical coal from its Australian assets by
2020, equivalent to a 12% compound annual growth rate from 2010,
using a standard longwall and coal handling and preparation plant
(CHPP) design model. In its first phase of development, Grosvenor
will consist of a single new underground longwall mine, targeting
the same well understood Goonyella Middle coal seam as Moranbah
North, and will process its coal through the existing Moranbah
North CHPP and train loading facilities. A pre-feasibility study
for expansion by adding a second longwall at Grosvenor is under
way.
The Grosvenor expansion project is currently in execution, with
engineering work approximately 50% complete as the first half of
2012, while earthworks commenced on the site in June 2012.
Construction of the drifts (tunnels) is expected to begin in August
2012.
Quellaveco - successful conclusion to community dialogue
process
Quellaveco is a greenfield copper project in the Moquegua region
of southern Peru which has the potential to produce 225 ktpa of
copper from an open pit over a mine life of more than 30 years. The
project is expected to operate in the lower half of the cash
operating cost curve, benefiting from attractive ore grades, low
waste stripping and molybdenum by-product production. Anglo
American completed the feasibility study for the project in late
2010 and took the decision to suspend progress in order to engage
more actively with the local communities through a formal dialogue
table process, following requests from local stakeholders. The
dialogue process reached agreement in early July 2012 in relation
to water usage, environmental responsibility and Anglo American's
social contribution over the life of the mine, and has been held up
as a model for stakeholder engagement in Peru. The project will be
put forward for review by the Board once outstanding permits are
received.
M&A update
De Beers
In November 2011, Anglo American agreed to acquire the
Oppenheimer family's 40% interest in De Beers for $5.1 billion,
subject to adjustment as provided for in the agreement and pending
regulatory and government approvals, increasing Anglo American's
current 45% shareholding to up to 85%.
This transaction is a unique opportunity for Anglo American to
consolidate control of the world's leading diamond company, marking
the Group's commitment to an industry with highly attractive long
term supply and demand fundamentals. Underpinned by the security of
supply offered by a new 10-year sales agreement with the Government
of the Republic of Botswana (GRB), this forms a compelling
proposition.
The benefits brought by Anglo American's scale, technical,
operational and exploration expertise and financial resources,
combined with the unquestionable leadership of De Beers' business
and iconic brand, will enable De Beers to enhance its position
across the diamond pipeline and capture the potential presented by
a rapidly evolving diamond market.
In July 2012, Anglo American announced that all conditions
precedent had been fulfilled and all required regulatory approvals
had been obtained. The GRB has a pre-emption right in respect of
the De Beers interests to be sold by CHL, and its affiliates,
enabling it to participate in the transaction and increase its
interest in De Beers, on a pro rata basis, to 25%.
In the event that the GRB exercises its pre-emption rights in
full, Anglo American would acquire an incremental 30% interest in
De Beers, taking its total interest to 75%, and the consideration
payable by Anglo American would be reduced proportionately. Cash
consideration will be paid on completion of the transaction, which
is expected to occur during the third quarter of 2012.
Anglo American Sur
In November 2011, entirely in accordance with its rights, Anglo
American announced the completion of the sale of a 24.5% stake in
Anglo American Sur (AA Sur), comprising a number of the Group's
copper assets in Chile, to Mitsubishi Corporation LLC (Mitsubishi)
for $5.4 billion in cash. This transaction highlighted the inherent
value of AA Sur as a world class, tier one copper business with
extensive reserves and resources and significant further growth
options from its exploration discoveries, valuing AA Sur at $22
billion on a 100% basis.
Litigation between Anglo American and Codelco in respect of the
option agreement between them relating to AA Sur (described fully
in Note 15 to the Condensed financial statements) is currently
suspended to allow Anglo American and Codelco to explore the
possibility of negotiating an agreement in relation to Anglo
American Sur. Should this prove successful, it will enable the two
parties to overcome their legal dispute.
Revuboe
On 24 July 2012, Anglo American announced that it had agreed to
acquire a 58.9% interest in the Revuboe metallurgical coal project
in Mozambique from the Talbot Estate for a total cash consideration
of A$540 million (approximately US$555 million). The Revuboe
project is a joint venture partnership and includes Nippon Steel
Corporation (33.3% interest), and POSCO (7.8% interest). Revuboe
has a reported JORC resource of 1.4 billion tonnes of hard coking
and thermal coal suitable for open cut mining, with the potential
to support the export of six to nine million tonnes per annum on a
100% basis.
The acquisition of a majority interest in Revuboe is in line
with Anglo American's strategic commitment to grow its global
metallurgical coal business to supply customers from each of the
key metallurgical coal supply regions of Australia, Canada and
Mozambique. Revuboe is located in the most attractive area of
Mozambique's Moatize coal basin and has a number of infrastructure
development options. The transaction is subject to a number of
conditions and is expected to be completed during the third quarter
of 2012.
Update on divestment programme
Subject to regulatory approvals, Anglo American's divestment
programme, as set out in October 2009, has been completed, raising
$3.8 billion of cumulative proceeds on a debt- and cash-free
basis.
In April 2012, Anglo American announced the final stage of the
$1.4 billion Scaw Metals Group (Scaw) divestment with the sale of
Scaw South Africa (Pty) Ltd (Scaw South Africa), a leading South
Africa-based integrated steel maker, to an investment consortium
led by the Industrial Development Corporation of South Africa (IDC)
and Anglo American's partners in Scaw South Africa, being Izingwe
Holdings (Pty) Limited, Shanduka Resources (Pty) Limited and the
Southern Palace Group of Companies (Pty) Limited, for a total
consideration of R3.4 billion ($440 million) on a debt- and
cash-free basis. This transaction follows the sale of Scaw's
international businesses, Moly-Cop and AltaSteel, to OneSteel in
December 2010 for a total consideration of $932 million on a debt-
and cash-free basis. In aggregate, the total consideration achieved
from the sale of all Scaw's businesses has amounted to $1.4 billion
on a debt- and cash-free basis.
On 18 February 2011, Anglo American and Lafarge announced their
agreement to combine their cement, aggregates, ready-mixed
concrete, asphalt and contracting businesses in the United Kingdom;
Tarmac Limited, Lafarge Cement UK, Lafarge Aggregates and Concrete
UK. The 50:50 joint venture will create a leading UK construction
materials company, with a portfolio of high quality assets drawing
on the complementary geographical distribution of operations and
assets, the skills of two experienced management teams and a
portfolio of well-known and innovative brands. This transaction
continues to progress through the regulatory clearance
processes.
On 1 May 2012, the UK Competition Commission approved the
proposed joint venture subject to a number of prior conditions.
These conditions include the need to divest certain cement,
aggregates, asphalt and ready-mixed concrete sites of both
businesses. Both parties will work with the regulators to implement
the required divestments and establish the proposed joint venture
as soon as practicable.
Outlook
The short term outlook for the world economy has deteriorated in
recent months. The eurozone crisis has intensified, adding to
economic uncertainty both inside and outside the euro zone. After a
promising start to the year, the US economy has weakened in
response to greater fiscal uncertainty. The major emerging
economies - notably China, India and Brazil - have also slowed.
Significant policy easing, however, should underpin a recovery.
We continue to see more sustainable growth in the medium to
longer term despite significant volatility in the short term. The
rapid 'catch-up' in living standards, notably in China and India,
combined with a medium term need for infrastructure replacement in
the developed countries, presents an attractive proposition for the
early cycle commodities. Over time the considerable scope for an
expanding middle class in many emerging economies should boost
consumption, which positions Anglo American well due to its late
cycle exposure through platinum and diamonds. Long term prices for
Anglo American's products are expected to be supported by
widespread supply constraints and the challenges producers face in
bringing new supply into production, leading to increasing capital
intensity and tight market fundamentals. In addition, economic
uncertainty is likely to lead to a reduction in capital investment
further restraining future supply.
For further information, please contact:
Media Investors
UK UK
James Wyatt-Tilby Leng Lau
Tel: +44 (0)20 7968 8759 Tel: +44 (0)20 7968 8540
Emily Blyth Caroline Crampton
Tel: +44 (0)20 7968 8481 Tel: +44 (0)20 7968 2192
South Africa South Africa
Pranill Ramchander Nicholas Gordon
Tel: +27 (0)11 638 2592 Tel: +27 (0)11 638 3262
Anglo American is one of the world's largest mining companies,
is headquartered in the UK and listed on the London and
Johannesburg stock exchanges. Anglo American's portfolio of mining
businesses spans bulk commodities - iron ore and manganese,
metallurgical coal and thermal coal; base metals - copper and
nickel; and precious metals and minerals - in which it is a global
leader in both platinum and diamonds. Anglo American is committed
to the highest standards of safety and responsibility across all
its businesses and geographies and to making a sustainable
difference in the development of the communities around its
operations. The company's mining operations, extensive pipeline of
growth projects and exploration activities span southern Africa,
South America, Australia, North America, Asia and Europe.
www.angloamerican.com
Webcast of presentation:
A live webcast of the results presentation, starting at 9.00am
UK time on 27 July, can be accessed through the Anglo American
website at www.angloamerican.com.
Note: Throughout this results announcement, '$' denotes United
States dollars and 'cents' refers to United States cents; operating
profit includes attributable share of associates' operating profit
and is before special items and remeasurements, unless otherwise
stated; special items and remeasurements are defined in note 4 to
the Condensed financial statements. Underlying earnings, unless
otherwise stated, is calculated as set out in note 9 to the
Condensed financial statements. Earnings before interest, tax,
depreciation and amortisation (EBITDA) is operating profit before
special items and remeasurements, depreciation and amortisation in
subsidiaries and joint ventures and includes attributable share of
EBITDA of associates. EBITDA is reconciled to 'Total profit from
operations and associates' and to 'Cash flows from operations' in
note 5 to the Condensed financial statements. Tonnes are metric
tons, 'Mt' denotes million tonnes and 'kt' denotes thousand tonnes,
unless otherwise stated.
Forward-looking statements
This announcement includes forward-looking statements. All
statements other than statements of historical facts included in
this announcement, including, without limitation, those regarding
Anglo American's financial position, business and acquisition
strategy, plans and objectives of management for future operations
(including development plans and objectives relating to Anglo
American's products, production forecasts and reserve and resource
positions), are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of Anglo American, or industry results, to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.
Such forward-looking statements are based on numerous
assumptions regarding Anglo American's present and future business
strategies and the environment in which Anglo American will operate
in the future. Important factors that could cause Anglo American's
actual results, performance or achievements to differ materially
from those in the forward-looking statements include, among others,
levels of actual production during any period, levels of global
demand and commodity market prices, mineral resource exploration
and development capabilities, recovery rates and other operational
capabilities, the availability of mining and processing equipment,
the ability to produce and transport products profitably, the
impact of foreign currency exchange rates on market prices and
operating costs, the availability of sufficient credit, the effects
of inflation, political uncertainty and economic conditions in
relevant areas of the world, the actions of competitors, activities
by governmental authorities such as changes in taxation or safety,
health, environmental or other types of regulation in the countries
where Anglo American operates, conflicts over land and resource
ownership rights and such other risk factors identified in Anglo
American's most recent Annual Report. Forward-looking statements
should, therefore, be construed in light of such risk factors and
undue reliance should not be placed on forward-looking statements.
These forward-looking statements speak only as of the date of this
announcement. Anglo American expressly disclaims any obligation or
undertaking (except as required by applicable law, the City Code on
Takeovers and Mergers (the "Takeover Code"), the UK Listing Rules,
the Disclosure and Transparency Rules of the Financial Services
Authority, the Listings Requirements of the securities exchange of
the JSE Limited in South Africa, the SWX Swiss Exchange, the
Botswana Stock Exchange and the Namibian Stock Exchange and any
other applicable regulations) to release publicly any updates or
revisions to any forward-looking statement contained herein to
reflect any change in Anglo American's expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statement is based.
Nothing in this announcement should be interpreted to mean that
future earnings per share of Anglo American will necessarily match
or exceed its historical published earnings per share.
Certain statistical and other information about Anglo American
included in this announcement is sourced from publicly available
third party sources. As such, it presents the views of those third
parties, though these may not necessarily correspond to the views
held by Anglo American.
Financial review of Group results
6 months 6 months
Operating profit ended ended
$ million 30 June 2012 30 June 2011
-------------------------------------------- -------------- --------------
Iron Ore and Manganese 1,779 2,462
Metallurgical Coal 159 501
Thermal Coal 433 521
Copper 978 1,401
Nickel 58 93
Platinum 84 542
Diamonds 250 450
Other Mining and Industrial 180 136
Exploration (72) (46)
Corporate Activities and Unallocated costs (125) (36)
-------------------------------------------- -------------- --------------
Operating profit including associates
before special items and remeasurements 3,724 6,024
-------------------------------------------- -------------- --------------
Group operating profit for the first half of 2012 was $3,724
million, 38% lower than the first half of 2011. This reduction in
operating profit was primarily driven by decreases in the realised
prices of commodities. These included a 24% decrease in achieved
Australian export metallurgical coal prices, a 21% decrease in
achieved FOB iron ore prices, an 18% decrease in realised South
African export thermal coal prices, a 12% decrease in realised
copper prices and a 13% decrease in realised platinum prices. In
addition, mining cost pressures affecting the industry resulted in
higher unit costs of production across the Group. The decrease in
operating profit was partly offset by the increase in production
across the Group's operations, mainly due to the ramp-up of the Los
Bronces, Kolomela and Zibulo projects and through asset
optimisation.
Corporate costs for the first half of 2012 were $125 million,
$89 million higher than the first half of 2011. This increase was
driven by a $90 million increase in the self insurance captive
loss, mainly due to one-off events in previous years at our Nickel
and Copper operations being settled in 2012.
Exploration costs for the first half of 2012 were $72 million,
57% higher than the first half of 2011. This is mainly driven by
increased metres drilled due to favourable weather conditions in
Australia and Chile, and a ramp-up in drilling activities at the
Sakatti polymetallic project in Finland.
Geographic diversity in both the Group's production and customer
base drives material exposure to foreign exchange fluctuations. For
the first half of 2012, the Group recognised a favourable variance
of $527 million in foreign exchange, primarily driven by the
appreciation of the US dollar against the South African rand.
Group underlying earnings were $1,691 million, a 46% decrease on
the first half of 2011. Group underlying earnings per share were
$1.38 compared with $2.58 in the first half of 2011.
6 months 6 months
Summary income statement ended ended
$ million 30 June 2012 30 June 2011
-------------------------------------------------- -------------- --------------
Operating profit from subsidiaries and
joint ventures before special items and
remeasurements 3,241 5,180
Operating special items (368) (25)
Operating remeasurements (84) 328
Operating profit from subsidiaries and
joint ventures 2,789 5,483
Non-operating special items (39) 417
Share of net income from associates (see
reconciliation below) 315 605
-------------------------------------------------- -------------- --------------
Total profit from operations and associates 3,065 6,505
Net finance (costs)/income before remeasurements (138) 20
Financing remeasurements 15 46
Profit before tax 2,942 6,571
Income tax expense (1,008) (1,556)
-------------------------------------------------- -------------- --------------
Profit for the financial period 1,934 5,015
Non-controlling interests (727) (1,027)
-------------------------------------------------- -------------- --------------
Profit for the financial period attributable
to equity shareholders of the Company 1,207 3,988
Basic earnings per share ($) 0.98 3.30
-------------------------------------------------- -------------- --------------
Group operating profit including associates
before special items and remeasurements(1) 3,724 6,024
-------------------------------------------------- -------------- --------------
Operating profit from associates before
special items and remeasurements 483 844
Operating special items and remeasurements (12) 8
Non operating special items - 6
Net finance costs (before special items
and remeasurements) (35) (26)
Financing special items and remeasurements 1 3
Income tax expense (after special items
and remeasurements) (118) (221)
Non-controlling interests (after special
items and remeasurements) (4) (9)
-------------------------------------------------- -------------- --------------
Share of net income from associates 315 605
-------------------------------------------------- -------------- --------------
Reconciliation of profit for the period 6 months 6 months
to underlying earnings(2) ended ended
$ million 30 June 2012 30 June 2011
---------------------------------------------- -------------- --------------
Profit for the financial period attributable
to equity shareholders of the Company 1,207 3,988
Operating special items 384 25
Operating remeasurements 80 (336)
Non-operating special items 39 (423)
Financing remeasurements (16) (49)
Special items and remeasurements tax 51 (136)
Non-controlling interests on special items
and remeasurements (54) 51
---------------------------------------------- -------------- --------------
Underlying earnings 1,691 3,120
---------------------------------------------- -------------- --------------
Underlying earnings per share ($) 1.38 2.58
---------------------------------------------- -------------- --------------
(1) Operating profit before special items and remeasurements
from subsidiaries and joint ventures was $3,241 million (six months
ended 30 June 2011: $5,180 million) and the attributable share from
associates was $483 million (six months ended 30 June 2011: $844
million). For special items and remeasurements, see note 4 to the
Condensed financial statements.
(2) Amounts shown include the Group's attributable share of the
equivalent items in associates.
Special items and remeasurements
6 months ended 30 June 2012 6 months ended 30 June 2011
------------------------------------ ------------------------------------
Subsidiaries Subsidiaries
and joint and joint
$ million ventures Associates Total ventures Associates Total
--------------------- ------------- ------------ ------- ------------- ------------ -------
Operating
special items (368) (16) (384) (25) - (25)
Operating
remeasurements (84) 4 (80) 328 8 336
--------------------- ------------- ------------ ------- ------------- ------------ -------
Operating
special items
and remeasurements (452) (12) (464) 303 8 311
--------------------- ------------- ------------ ------- ------------- ------------ -------
Non-operating
special items (39) - (39) 417 6 423
--------------------- ------------- ------------ ------- ------------- ------------ -------
Financing
remeasurements 15 1 16 46 3 49
--------------------- ------------- ------------ ------- ------------- ------------ -------
Special items
and remeasurements
tax (54) 3 (51) 140 (4) 136
--------------------- ------------- ------------ ------- ------------- ------------ -------
Operating special items and remeasurements, including
associates, amounted to a loss of $464 million, principally in
respect of impairment and related charges of $384 million in the
six months ended 30 June 2012 (six months ended 30 June 2011: $15
million) and net losses on non-hedge derivatives related to capital
expenditure in Iron Ore Brazil. Derivatives which have been
realised during the period resulted in a net operating
remeasurement gain since their inception of $13 million (six months
ended 30 June 2011: gain of $224 million).
The Kumba Envision Trust charge of $39 million relates to
Kumba's broad based employee share scheme provided solely for the
benefit of non-managerial Historically Disadvantaged South African
employees who do not participate in other Kumba share schemes.
There were no gains or losses on disposals of businesses in the
six months ended 30 June 2012 (six months ended 30 June 2011: gain
of $423 million).
Financing remeasurements, including associates, reflect a net
gain of $16 million relating to fair value movements on interest
rate swaps and other derivatives.
Special items and remeasurements tax, including associates,
amounted to a charge of $51 million relating to a tax remeasurement
charge of $152 million partially offset by a tax credit on special
items and remeasurements of $83 million and a credit for one-off
tax items of $18 million.
Net finance costs
Net finance costs, before remeasurements, excluding associates,
were $138 million (compared to income of $20 million in the six
months ended 30 June 2011). This reflected foreign exchange losses
on net debt of $73 million compared to gains of $32 million in
2011, lower interest income and lower capitalised interest.
Tax
6 months ended 30 June
6 months ended 30 June 2012 2011
----------------------------------------------- -----------------------------------------------
Associates' Associates'
$ million Before special tax and Before special tax and
(unless otherwise items and non-controlling Including items and non-controlling Including
stated) remeasurements interests associates remeasurements interests associates
-------------------- --------------- ----------------- ----------- --------------- ----------------- -----------
Profit before
tax 3,427 124 3,551 5,793 225 6,018
-------------------- --------------- ----------------- ----------- --------------- ----------------- -----------
Tax (954) (121) (1,075) (1,696) (217) (1,913)
-------------------- --------------- ----------------- ----------- --------------- ----------------- -----------
Profit for
the financial
period 2,473 3 2,476 4,097 8 4,105
-------------------- --------------- ----------------- ----------- --------------- ----------------- -----------
Effective tax
rate including
associates
(%) 30.3 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 income tax expense. Associates' tax included within 'Share
of net income from associates' for the six months ended 30 June
2012 is $118 million. Excluding special items and remeasurements,
this becomes $121 million.
The effective rate of tax before special items and
remeasurements including attributable share of associates' tax for
the six months ended 30 June 2012 was 30.3%. This was lower than
the equivalent effective rate of 31.8% in the six months ended 30
June 2011 due to the further recognition of previously unrecognised
losses. In future periods it is expected that the effective tax
rate, including associates' tax, will remain above the United
Kingdom statutory tax rate.
Balance sheet
Equity attributable to equity shareholders of the Company was
$40,628 million at 30 June 2012, up from $39,092 million at 31
December 2011, reflecting the profit for the period of $1,207
million and the issue of shares on conversion of convertible bonds
($1,507 million), offset by the payment of the 2011 final dividend
of $559 million and other movements in equity. Following the
agreement to sell the Group's interest in Scaw South Africa, it was
classified as a disposal group and its assets and liabilities are
presented as held for sale on the balance sheet.
Cash flow
Net cash inflows from operating activities were $2,478 million
compared with $3,986 million in the six months ended 30 June 2011.
EBITDA was $4,942 million, a decrease of 31% from $7,112 million in
the prior period, reflecting decreasing prices across the Group's
core commodities.
Net cash used in investing activities of $2,121 million was
higher compared to the amount in the six months ended 30 June 2011
of $1,682 million, primarily due to disposal proceeds of $505
million received in 2011 (mainly relating to Zinc asset
disposals).
Net cash used in financing activities was $767 million compared
with $1,909 million in the six months ended 30 June 2011. This
includes the payment of $1,015 million in tax relating to the sale
of 24.5% of Anglo American Sur to Mitsubishi in 2011, dividend
payments to Company shareholders and non-controlling interests
totalling $1,312 million and other financing activities, offset by
cash inflows relating to net additional borrowings of $2,771
million, largely due to corporate bond issuances in the period.
Liquidity and funding
Net debt, including related hedges, was $3,124 million, an
increase of $1,750 million from $1,374 million at 31 December 2011.
The increase reflects net cash outflows of $3,293 million before
receipts and borrowings, partly offset by non-cash movements
including a $1,507 million reduction due to the conversion of the
convertible bond.
Net debt at 30 June 2012 comprised $14,048 million of debt,
offset by $11,290 million of cash and cash equivalents, and the
current position of derivative liabilities related to net debt of
$366 million. Net debt to total capital at 30 June 2012 was 6.5%,
compared with 3.1% at 31 December 2011.
At 30 June 2012, the Group had undrawn bank facilities of $8.0
billion.
The Group's forecasts and projections, taking account of
reasonably possible changes in trading performance, indicate the
Group's ability to operate within the level of its current
facilities for the foreseeable future.
Group corporate cost allocation
Corporate costs which are considered to be value adding to the
business units are allocated to each business unit and costs
reported externally as Group corporate costs only comprise costs
associated with parental or direct shareholder related
activities.
Dividends
An interim dividend of 32 US cents per share (30 June 2011: 28
US cents per share) has been declared.
Related party transactions
Related party transactions are disclosed in note 16 to the
Condensed financial statements.
Principal risks and uncertainties
Anglo American is exposed to a variety of risks and
uncertainties which may have a financial, operational or
reputational impact on the Group and which may also have an impact
on 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 of the Annual Report 2011, and remain appropriate in
2012. Key headline risks relate to the following:
-- Commodity prices
-- Liquidity risk
-- Counterparty risk
-- Currency risk
-- Inflation
-- Health and safety
-- Environment
-- Exploration
-- Political, legal and regulatory
-- Climate change
-- Supply risk
-- Ore reserves and mineral resources
-- Operational performance and project delivery
-- Event risk
-- Employees
-- Contractors
-- Business integrity
-- Joint ventures
-- Acquisitions and divestments
-- Infrastructure
-- Community relations
The Group is exposed to changes in the economic environment, as
with any other business.
Details of any key risks and uncertainties specific to the
period are covered in the operations review section.
The Annual Report 2011 is available on the Group's website
www.angloamerican.com.
Operations review for the six months ended 30 June 2012
In the operations review on the following pages, operating
profit includes the attributable share of associates' operating
profit and is before special items and remeasurements unless
otherwise stated. Capital expenditure relates to cash expenditure
on property, plant and equipment (net of related derivatives).
IRON ORE AND MANGANESE
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
------------------------------------- -------------- --------------
Operating profit 1,779 2,462
-------------- --------------
Kumba Iron Ore 1,840 2,437
Iron Ore Brazil(1) (81) (81)
Samancor 20 106
EBITDA 1,912 2,554
Net operating assets 13,315 12,212
Capital expenditure 784 563
Share of Group operating profit 48% 41%
Share of Group net operating assets 29% 26%
------------------------------------- -------------- --------------
(1) In 2012 Amapa has been reclassified from Iron Ore and
Manganese to Other Mining and Industrial, to align with internal
management reporting. Comparatives have been reclassified to align
with current year presentation.
Operating profit decreased by 28% from $2,462 million to $1,779
million, principally due to substantially weaker iron ore export
prices and cost increases which were partially offset by higher
export sales volumes.
Markets
Global crude steel production increased marginally to 775 Mt for
the first half of 2012 compared to 772 Mt for the same period in
2011. China's crude steel production for the first half of the year
of 355 Mt was up 1% year on year. At current production run rates
it is anticipated that Chinese crude steel production could
increase by 4% year on year to around 715 Mt for 2012, supporting a
2% increase in global crude steel production. Seaborne iron ore
supply of some 533 Mt for the first half of 2012 was impacted by
adverse weather conditions in Australia and Brazil during the first
quarter, but saw a substantial rebound during the second quarter.
Iron ore index prices traded in a range between $130/t and $150/t,
with a high of approximately $150/t (CFR China 62% Fe) during April
2012, and averaged $142/t during the first six months (30 June
2011: $179/t). Index prices declined steadily from these levels to
just above $130/t towards the end of May as Chinese steel mills
reduced their offtake. Iron ore prices have since stabilised to
around $135/t as Chinese steel mills returned to the market to
replenish stockpiles.
Operating performance
Kumba Iron Ore
Total tonnes mined at Sishen mine increased by 16% from 76.7 Mt
in the first half of 2011 to 88.9 Mt, of which waste mined was 68.8
Mt, an increase of 33% over the first six months of 2011. Total
production at Sishen mine decreased by 4% from 18.6 Mt in 2011 to
17.9 Mt. Production was impacted by the availability of material
supplied to the mine's dense media separation plant and jig plant.
This was as expected given a currently constrained pit, and is
being addressed through the planned increase in waste stripping.
This position was further impacted by wet pit conditions resulting
from heavy rainfall, and poor operator attendance during the first
quarter of 2012. Production run rates recovered in the second
quarter of 2012 as the ramp-up in waste mining continued to
improve, resulting in a 12% increase from 8.5 Mt in the first
quarter of 2012.
Following successful commissioning in 2011, Kolomela mine
continues to ramp up well with 3.3 Mt produced during the six
months, a substantial increase on the 1.2 Mt produced in the fourth
quarter of 2011. Should the current ramp-up performance be
sustained, the mine should exceed the 4 to 5 Mt production guidance
for 2012, increasing to 9 Mtpa design capacity in 2013. Total
tonnes mined at Kolomela mine increased by 25% from 15.3 Mt in 2011
to 19.1 Mt, of which waste mined was 15.6 Mt, an increase of 6%
over the first six months of 2011.
Total sales volumes for Kumba for the half year were a record at
23.4 Mt, a 6% increase compared to the 22 Mt in 2011. Export sales
volumes for the half year increased 13% from 18.4 Mt in 2011 to
20.7 Mt. Kumba's export sales volumes to China totalled 71% of
total export volumes for the six months, against 69% during the
first half of 2011.
Iron Ore Brazil
Iron Ore Brazil generated an operating loss of $81 million,
largely reflecting the pre-operational state of the Minas-Rio
project.
Samancor
Operating profit of $20 million was $86 million lower than the
prior period, driven by lower prices and lower alloy volumes,
offset by strong ore sales volumes.
Production of ore increased by 31% from 1.3 Mt to record 1.6 Mt
(attributable basis) due to consistently strong operating
performance and improved plant availability at both GEMCO in
Australia and Hotazel in South Africa.
Production of alloy decreased by 41% from 144,900 tonnes to
85,200 tonnes (attributable basis) due to termination of
energy-intensive silica-manganese production at the Metalloys plant
in South Africa and the temporary suspension of production at TEMCO
in Australia during the first quarter of the current year. TEMCO is
expected to return to full capacity by the end of the third quarter
in 2012.
A general oversupply in the industry as a result of a slowdown
in steel production and high stock levels in China continue to
weigh heavily on ore and alloy prices. Despite recent reductions in
Chinese imports, low short term demand expectations are slowing the
rate at which stocks can reach normal levels.
Projects
Iron Ore Brazil
Construction is under way at the first phase of the 26.5 Mtpa
Minas-Rio iron ore project, with significant progress made.
Earthworks continue in order to support civil work activities at
the beneficiation plant site and land access at the tailings dam
area continues to be obtained. Progress on the pipeline route
continues and by the end of June 2012, 216 km or 41% of the
pipeline had been completed. At the port, most off-shore civil
works have been concluded while on- and off-shore mechanical
erection has commenced.
While progress is being made, legal challenges have affected
construction activities at the beneficiation plant and along the
pipeline. The heavy rains at the beginning of the year, together
with the various legal challenges and consequent stoppages, the
unresolved cave 3 radius reduction and the outstanding land access
at the pipeline route, are impacting the completion of the project.
Taking these issues into account, a detailed review of the
Minas-Rio schedule has been commissioned and completed. The outcome
of this review is that subject to obtaining the outstanding
licences; resolving current legal challenges; and not being
impacted by any further unexpected disruptions, first ore on ship
is anticipated to be in the second half of 2014. The financial
impact of the delay in the completion date is being assessed.
Samancor
Following on from its approval in 2011, the $279 million GEEP2
project (Anglo American's 40% share: $112 million) will increase
GEMCO's beneficiated product capacity from 4.2 Mtpa to 4.8 Mtpa
through the introduction of a dense media circuit by-pass facility.
The project is expected to be completed in late 2013. The expansion
will also address infrastructure constraints by increasing road and
port capacity to 5.9 Mtpa, creating 1.1 Mtpa of latent capacity for
future expansions.
The addition of the high carbon ferro-manganese furnace, M14, at
the Metalloys smelter in Meyerton, South Africa will add an
additional 75,000 tonnes of per annum capacity. The cost of project
is $90 million (on a 100% basis) and is scheduled for completion,
on budget, in the fourth quarter of 2012.
Outlook
Kumba Iron Ore
Although China's annualised crude steel production rate remains
above 700 Mtpa, underlying steel demand remains weak, resulting in
depressed steel prices. Iron ore prices, however, are expected to
trade in a similar range as seen during the first half of the year,
supported by high-cost Chinese domestic iron ore production. The
recently announced monetary policy stimulus of an interest rate cut
in China should support demand for steel, but the effect of it
remains to be seen especially in light of economic uncertainty
emanating from Europe.
The ramp-up in waste mining at Sishen mine continues, which will
support an improvement in production rates at the mine during the
second half of 2012. Production at Sishen mine for the full year is
anticipated to be in line with 2011 levels. The ramp-up of Kolomela
remains on track and will support export sales volume growth of 3
Mt to 4 Mt in 2012.
Samancor
The downward pressure on ore pricing is expected to ease during
the second half of 2012, with the speed of the recovery being
determined by continued supply curtailments.
On 23 February 2012, Samancor announced a 90-day suspension of
operations at its TEMCO manganese alloy facility in Tasmania,
Australia, to review the economic viability of continuing
operations. With that review now complete, significant cost
reduction opportunities have been identified which should allow
TEMCO to return to a globally competitive cost position. The
planned safe and full restart of the operation has commenced. The
company's intention is to have all four furnaces operating by the
end of August 2012.
METALLURGICAL COAL
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
------------------------------------- -------------- --------------
Operating profit 159 501
EBITDA 379 683
Net operating assets 4,796 4,683
Capital expenditure 370 222
Share of Group operating profit 4% 8%
Share of Group net operating assets 11% 10%
------------------------------------- -------------- --------------
Metallurgical Coal recorded an operating profit of $159 million,
a 68% decrease, due to the reduction in realised export prices
partly offset by higher sales volumes. Average realised
metallurgical coal prices were 24% lower than prices achieved in
the first half of last year. Productivity improvements at the open
cut operations and a reduction in weather related stoppages
supported by the rigorous preparation for seasonal rains led to a
significant increase in metallurgical coal production and
sales.
Markets
6 months
Anglo American weighted average achieved 6 months ended
sales prices ended 30 June
($/tonne) 30 June 2012 2011
------------------------------------------ -------------- ---------
Export metallurgical coal (FOB) 191 251
Export thermal coal (FOB Australia) 103 103
Domestic thermal coal 37 35
------------------------------------------ -------------- ---------
6 months
6 months ended
Attributable sales volumes ended 30 June
('000 tonnes) 30 June 2012 2011
---------------------------- -------------- ---------
Export metallurgical coal 8,602 6,252
Export thermal coal 2,748 2,547
Domestic thermal coal 3,183 3,759
---------------------------- -------------- ---------
Despite subdued demand sentiment, the seaborne metallurgical
coal market showed a price recovery towards the end of the second
quarter of 2012. Continued industrial action in Queensland has
limited the availability of premium quality hard coking coal,
supporting price increases over recent months.
Semi-soft and PCI prices, however, experienced downward pricing
pressure as a result of subdued global steel demand impacting the
consumption of metallurgical coal and in particular PCI. In
addition, falling thermal coal prices, which increased availability
of lower grade coking coals from the US, have resulted in a
widening price differential between premium quality and lower grade
coking coals.
Operating performance
6 months
6 months ended
Attributable production ended 30 June
('000 tonnes) 30 June 2012 2011
--------------------------- -------------- ---------
Export metallurgical coal 8,589 6,114
Thermal coal 5,857 6,090
--------------------------- -------------- ---------
Export metallurgical coal production increased by 40% to 8.6 Mt,
a record half-year total, while thermal coal production decreased
by 4% to 5.9 Mt. Production at Queensland operations benefited from
a reduction in weather-related stoppages, supported by rain
mitigation initiatives implemented during 2011 and asset
optimisation across key mines. Peace River Coal in Canada, for
example, lifted its coal production by a substantial 42% following
a combination of improved management systems, productivity
improvements and upgrades to the coal handling and preparation
plant. Thermal coal production was impacted by wet weather in the
New South Wales Hunter Valley and industrial action in the first
quarter at Drayton.
Projects
In June 2012, the Queensland Government granted Anglo American
the mining lease for the $1.7 billion Grosvenor project. The
Grosvenor project is 100% owned by Anglo American, and was approved
by the Board in December 2011. This forms a major part of the
Group's strategy to triple metallurgical coal production by 2020.
Grosvenor will consist of a single new underground longwall mine
targeting the same well understood Goonyella Middle coal seam as
Moranbah North mine.
In addition, studies for the next phase of our investment
programme in high margin hard coking coal continue, aligned with
our expectations of growing seaborne demand. This includes
Grosvenor Phase 2, a 6 Mtpa second longwall for the Grosvenor
project; and Moranbah South, a 50% 12 Mtpa joint venture comprising
two longwalls.
Anglo American is continuing to evaluate long term port
expansion opportunities to support Queensland growth projects, as
well as medium term port capacity options, to meet the export
requirements for the initial years of production from the Grosvenor
project.
Outlook
Overall global demand for seaborne metallurgical coal remained
relatively stable in the first half of 2012. In the near term,
demand is expected to be impacted by global economic uncertainty.
Supply disruptions owing to industrial actions in Australia have
recently subsided. Pricing differentiation between the premium and
lower quality product is expected to remain with continued supply
from US.
In the second half of 2012, Anglo American production of high
margin export products is expected to increase, supported by
productivity improvements at both open cut and underground
operations.
THERMAL COAL
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
------------------------------------- -------------- --------------
Operating profit 433 521
-------------- --------------
South Africa 235 319
Colombia 214 212
Projects and corporate (16) (10)
-------------- --------------
EBITDA 522 611
Net operating assets 1,742 2,080
Capital expenditure 101 31
Share of Group operating profit 12% 9%
Share of Group net operating assets 4% 5%
------------------------------------- -------------- --------------
Thermal Coal generated an operating profit of $433 million, a
17% decrease on the equivalent period of 2011, driven by lower
average export thermal coal prices and above-inflation cost
pressures. This was partly offset by a weaker South African rand
and increased sales volumes, supported by record half year
production at Cerrejon.
Markets
6 months 6 months
Anglo American weighted average achieved ended ended
sales prices ($/tonne) 30 June 2012 30 June 2011
------------------------------------------ -------------- --------------
South Africa export thermal coal (FOB) 99 120
South Africa domestic thermal coal 21 22
Colombia export thermal coal (FOB) 92 101
------------------------------------------ -------------- --------------
6 months 6 months
Attributable sales volumes ended ended
('000 tonnes) 30 June 2012 30 June 2011
------------------------------------------- -------------- --------------
South Africa export thermal coal(1) 8,239 6,781
South Africa domestic thermal coal(1) (2) 19,357 19,392
Colombia export thermal coal 5,594 5,000
------------------------------------------- -------------- --------------
(1) Zibulo commended commercial production on 1 October 2011.
Six months ended 30 June 2011 includes capitalised sales from
Zibulo mine of 879,000 tonnes export thermal coal and 356,000
tonnes Eskom coal.
(2) Includes domestic metallurgical coal of 92,000 tonnes for
the six months ended 30 June 2012 (six months ended 30 June 2011:
172,000).
Seaborne thermal coal prices have weakened in the first half of
2012. Low US gas prices have displaced a significant volume of
domestic US thermal coal, resulting in higher US thermal coal
exports. Prices were further impacted by increased coal supply from
South Africa, Colombia, Indonesia and Australia as production and
logistics infrastructure continued to ramp up in these regions.
Demand in the Asia Pacific region remains relatively robust, as
higher cost domestic supply is substituted for lower cost seaborne
imports. At the same time, consumers continued to hold back on
purchases in light of comfortable stock levels and the anticipation
of a further reduction in price. High cost producers within the
Appalachian basin in the US have cut production as prices eased.
International seaborne prices have declined, with API 4 dropping
from $106/t in January to $85/t in June.
South African thermal coal exports have seen a dramatic change
in their destination markets, with India and Asia now accounting
for around two-thirds of shipments. Within Asia, Taiwan, South
Korea and Malaysia have picked up a share of India's imports from
last year. The continued improved performance by Transnet Freight
and Rail (TFR) saw South African coal exports 4.7 Mt, or 17%,
higher at 32.1 Mt for the first six months of 2012 (first six
months of 2011: 27.4 Mt).
Operating performance
6 months 6 months
Attributable production ended ended
('000 tonnes) 30 June 2012 30 June 2011
------------------------------------------ -------------- --------------
South Africa export thermal coal (1) (2) 7,918 7,945
Colombia export thermal coal 6,058 5,147
South Africa Eskom coal (1) 16,089 17,058
South Africa domestic other (2) 3,168 2,562
------------------------------------------ -------------- --------------
(1) Zibulo commended commercial production on 1 October 2011.
Six months ended 30 June 2011 includes capitalised production from
Zibulo mine of 936,400 tonnes thermal coal and 396,900 tonnes Eskom
coal.
(2) Includes domestic metallurgical coal of 74,100 tonnes for
the six months ended 30 June 2012 (six months ended 30 June 2011:
163,300).
South Africa
Operating profit from South African operations decreased by 26%
to $235 million, driven by lower average export thermal coal prices
and above-inflation cost increases, in labour, power and fuel. This
was partly offset by a weaker South African rand and higher sales
volumes, supported by the improved TFR rail performance relative to
the first half of 2011.
Export production for the first half was in line with the prior
period as Zibulo's continued ramp-up was offset by the planned
closure of high-cost sections at Goedehoop, Greenside and
Kleinkopje, as well as industrial actions in the first quarter of
the year at most operations.
Colombia
At Cerrejon, operating profit of $214 million was broadly in
line with the prior period, driven by strong production, which was
up 18%, partly offset by lower thermal coal prices.
Projects
Feasibility studies on the New Largo project have been
completed. There are two elements to this project: a new opencast
mine and a conveyor which will run from an existing coal plant to
an Eskom power station. The planned commencement date for coal on
conveyor is the third quarter of 2014, with first coal production
for New Largo currently expected in the fourth quarter of 2015.
Anglo American will contribute a minority portion of the
establishment capital.
In Colombia, the Cerrejon P500 Phase 1 expansion project to
increase production by 8 Mtpa was approved by its shareholders in
the third quarter of 2011. First coal is targeted for the fourth
quarter of 2013, with the project expected to achieve full
production by the end of 2015.
Outlook
Current industry oversupply, coupled with lacklustre demand in
the Atlantic and delayed procurement in the Asia region, continues
to weigh on thermal coal prices. Pricing pressure is expected to
remain for the rest of 2012, though the Chinese domestic market
price and the high US break-even price for producers should act as
a natural floor to the seaborne price.
Current prices are expected to trigger supply-side response,
with US producers already announcing 76 Mt of production cuts to
date and demand in China and India expected to remain robust driven
by seasonal power generation in the fourth quarter. This should
rebalance the market in the final quarter of 2012.
COPPER
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
------------------------------------- -------------- --------------
Operating profit 978 1,401
EBITDA 1,210 1,527
Net operating assets 8,062 7,050
Capital expenditure 488 831
Share of Group operating profit 26% 23%
Share of Group net operating assets 18% 15%
------------------------------------- -------------- --------------
Copper generated an operating profit of $978 million, a decrease
of 30% as a result of a lower average copper price, declining grade
profile and lower recoveries compared to the six months ended 30
June 2011. This was partially offset by higher sales volumes from
the strong ramp-up of the Los Bronces expansion project.
Markets
6 months 6 months
ended ended
30 June 2012 30 June 2011
-------------------------------- -------------- --------------
Average market prices (c/lb) 367 426
-------------------------------- -------------- --------------
Average realised prices (c/lb) 370 422
-------------------------------- -------------- --------------
Copper prices were stable during the first four months of the
year before easing in the second quarter on the back of increased
global economic uncertainty. The market continues to forecast a
small deficit globally for the full year, despite further
deterioration in Europe and slower economic growth in China
impacting demand. Supply continues to disappoint due to grade
declines and various disruptions.
The LME copper price ended the half year period at 345 c/lb,
averaging 367 c/lb for the first six months, a 14% decrease
compared with the same period in 2011. A net positive provisional
pricing adjustment of $20 million was recorded in the first half of
2012 compared to a negative price adjustment of $36 million in
2011, resulting in a realised price of 370 c/lb versus 422 c/lb for
the prior period.
Operating performance
6 months 6 months
ended ended
30 June 2012 30 June 2011
----------------------------------------- -------------- --------------
Attributable copper production (tonnes) 329,500 289,100
----------------------------------------- -------------- --------------
Total copper production of 329,500 tonnes was 14% higher than
the same period in 2011.
Los Bronces' production was 80% higher at 183,000 tonnes, with
the Los Bronces expansion project contributing 93,100 tonnes of
production. The new processing plant is ramping up strongly, with
mill throughput of 92% of design capacity achieved during the
quarter. Production performance at Los Bronces was impacted by
lower ore grades.
El Soldado's output was 46% higher at 26,100 tonnes due to
improved plant performance, higher ore grades and better recovery.
Mantos Blancos' production of 26,200 tonnes was 27% lower, impacted
by an incident which resulted in a lower ore grade area being
mined. Mantoverde's production of 30,300 tonnes was in line with
the prior year.
Collahuasi's attributable production of 63,900 tonnes was 38%
lower, partially due to expected lower grades during 2012. This was
exacerbated by lower recoveries, adverse weather conditions, safety
stoppages and a ball mill failure. In response to poor performance
at Collahuasi, the joint venture partners have put in place a
business improvement plan, including assigning joint CEOs from
Anglo American and Xstrata and a team of 30 specialists seconded
from the three partners to draw up and implement an action
plan.
Projects
At Collahuasi, the expansion project to increase concentrator
plant throughput to 160,000 tonnes of ore per day equivalent to an
annual average production increment of 20,000 tonnes per year of
copper over the estimated life of mine, remains on schedule for
2013. The pre-feasibility study for the next phase of expansion at
Collahuasi is expected to be completed in the second half of 2012,
with options to substantially increase annual production from the
current levels.
In Peru, the focus continues to be on obtaining the permits
required to take the Quellaveco project forward for Board approval.
Community engagement has continued through a dialogue table
process, with agreement being reached in early June in relation to
water usage, environmental responsibility and Anglo American's
social contribution over the life of mine. The concept level study
for the Michiquillay project was completed in the period and is
under review.
Activity at the Pebble project in Alaska continues, with the
focus on completing a pre-feasibility study. The draft Bristol Bay
Watershed Assessment was released by the Environmental Protection
Agency (EPA) in May 2012. The EPA has estimated that the report
will be finalised by the end of the year.
Outlook
Full year copper production for 2012 is expected to be higher
than 2011, driven by the continued ramp-up to design capacity of
the Los Bronces expansion project in the second half. Production at
Los Bronces will, however, be impacted by increased waste stripping
and lower ore grades. In addition, lower grade and recoveries and
repair of the ball mill at Collahuasi will have a negative impact
into the second half of the year. Production is expected to
continue to increase in 2013, as the Los Bronces expansion project
reaches full capacity for the year, and through improved operating
performance and ore grades at Collahuasi.
Challenges remain in managing industry-wide input cost
pressures, although these will be partially mitigated by the
expanded Los Bronces operation's increased production.
Ongoing market concerns arising from uncertainties over the near
term outlook for the global economy may lead to short term
volatility in the copper price. However, the medium to long term
fundamentals for copper remain strong, predominantly driven by
robust demand from the emerging economies, ageing mines with
ongoing grade decline and a lack of new supply.
NICKEL
6 months
6 months ended
$ million ended 30 June
(unless otherwise stated) 30 June 2012 2011
------------------------------------- -------------- ---------
Operating profit 58 93
EBITDA 72 106
Net operating assets 2,642 2,526
Capital expenditure 89 177
Share of Group operating profit 2% 2%
Share of Group net operating assets 6% 5%
------------------------------------- -------------- ---------
Nickel generated an operating profit of $58 million, 38% lower
than the first half of 2011. Operating profit includes a self
insurance recovery of $57 million but was significantly impacted by
a 28% decline in the LME nickel price and inflationary pressures in
Venezuela. This was in part offset by a weaker Brazilian real.
Operating profit for Barro Alto is capitalised whilst ramp-up
continues.
Markets
6 months 6 months
ended ended
30 June 2012 30 June 2011
-------------------------------- -------------- --------------
Average market prices (c/lb) 836 1,159
Average realised prices (c/lb) 798 1,105
-------------------------------- -------------- --------------
Despite LME price strengthening at the start of 2012, reaching
983 c/lb at the end of January, prices in the first half of the
year were lower due to the worsening macroeconomic environment
which negatively affected stainless steel production and nickel
demand. In combination with the ramp-up of new nickel supply,
market fundamentals have worsened during the first half of
2012.
Operating performance
6 months
6 months ended
ended 30 June
30 June 2012 2011
----------------------------------------- -------------- ---------
Attributable nickel production (tonnes) 22,900 12,700
----------------------------------------- -------------- ---------
Nickel production increased by 80% to 22,900 tonnes owing to the
ramp-up of Barro Alto, which produced first metal in March of
2011.
Barro Alto produced 12,000 tonnes during the first half of 2012,
including the impact of a one month, Line 1 shutdown in June 2012.
Line 1 has ramped up well achieving average feed rates of almost
80% of nominal capacity in the period since the shutdown. In
addition, recovery continues to improve and delivery of full
capacity rates in early 2013 continues to be targeted.
Loma de Niquel's three remaining concessions (after the
cancellation of 13 other concessions) are due to expire in November
2012 and consistent with the prior year, the operation is reflected
in the Group's results
as if it will close in November. However, discussions with the
authorities regarding Anglo American's possible continued operation
of the asset are ongoing.
Projects
Jacare and Morro Sem Bone, both promising unapproved nickel
projects in Brazil, continue to be under study. The Jacare
pre-feasibility study commenced in 2012 and exploration is ongoing
at Morro Sem Bone.
Outlook
Production of nickel during the second half of the year is
expected to be higher as Barro Alto continues to ramp up.
With slower demand than previously expected due to the economic
situation and the ramp-up of new production facilities, global
nickel supply is expected to increase faster than demand in 2012,
leading to an increase in the surplus of supply over demand. On the
supply side, however, the delivery of new projects has been slower
than expected. In addition, lower nickel prices are leading to
production stoppages at some nickel pig iron producers in China
which will also lower supply. Most experts forecast the supply
surplus to reduce in 2013 due to better demand and lower supply
growth. This is expected to lead to a tighter market and moderate
improvement in prices. PLATINUM
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
------------------------------------- -------------- --------------
Operating profit 84 542
EBITDA 439 931
Net operating assets 11,668 13,258
Capital expenditure 356 410
Share of Group operating profit 2% 9%
Share of Group net operating assets 26% 29%
------------------------------------- -------------- --------------
Platinum recorded an operating profit of $84 million, an 85%
decrease, primarily driven by lower sales volumes and weaker
realised prices. The operating profit of $84 million also reflects
the recognition of the inventory revaluation following the annual
physical count. On a month to month basis, and in line with
industry practice, Platinum's metal inventory is estimated, with an
annual physical stocktake undertaken each year in February to
validate theoretical inventory levels. In 2012, Platinum recorded a
pre-tax gain of $172 million compared to theoretical stock levels,
in contrast to a gain of $61 million in 2011.
Refined platinum production and sales volume decreased by 13%
and 21% respectively. This was partially offset by a weaker average
rand against the dollar. Cash operating costs per equivalent
refined platinum ounce increased by 11% compared with the first
half of 2011, primarily due to increases in the costs of labour,
electricity and electrical components, diesel and reagents.
Markets
Global demand for platinum during the first half of 2012 was
marginally weaker than expected. Firmer jewellery demand stimulated
by current depressed price levels was unable to offset weak
autocatalyst and investment demand. Industrial demand for platinum
remained flat as expected.
Labour and safety related stoppages in South Africa reduced
planned supply of refined platinum from South Africa in the first
half of 2012, as did production curtailment at a number of
unprofitable mines. Despite the reduction in supply forecasts for
2012, platinum metal investment sentiment and prices remain
poor.
Palladium demand remained firm as growth in demand for gasoline
vehicles continues and expectations of a deficit market provided
price support. Rhodium demand remained weak, and a reversal of
substitution implemented during periods of historic high prices
remains unlikely.
Autocatalysts
Ongoing economic uncertainty in Europe continued to impact
demand for new vehicles, with sales approximately 7% below those in
the first half of 2011. European autocatalyst demand represents
approximately 47% of global demand, and platinum loading per
catalyst, particularly in light duty diesel vehicles in Europe,
continues to increase ahead of the Euro 6 emissions limits
commencing in September 2014.
Supply of platinum and palladium from recycled autocatalysts
increased at a slower rate than in 2011 as the distortions that
resulted from scrappage incentive schemes have largely worked their
way out of the supply system.
Industrial
Gross platinum demand for industrial applications is not
expected to increase in 2012. The record demand in 2011, driven by
delayed consumption, is unlikely to be repeated. Indications in
2012 are that industrial demand is flat, with potential for further
weakness in the second half.
Jewellery
Jewellery demand remained firm during the first half of the year
with China benefiting most from the current low price as strong
demand from manufacturers on price dips continues. Platinum
jewellery demand continues to benefit from platinum trading at a
discount, of over $100/oz, to gold. Improved confidence in platinum
jewellery by Chinese and Hong Kong retail brands has resulted in
increased platinum stock levels in both existing and newly opened
stores.
Investment
Platinum investment demand in the first half of 2012 remained
muted as ongoing macroeconomic uncertainty maintained negative
investor sentiment. Reduced participation in non-visible or
over-the-counter metal trade continues to depress prices which, in
turn, reduces demand for Exchange Traded Funds.
Operating performance
Equivalent refined platinum production(1) for the first half of
2012 was 1.18 million ounces, an increase of 1% when compared to
the first half of 2011.
Own mines, including Western Limb Tailings Retreatment, produced
802,600 equivalent refined platinum ounces, an increase of 5%
compared with the first half of 2011. The Rustenburg Complex mines
increased output by 42,900 ounces or 17%. Increases in output were
also recorded at Dishaba, Union South and Unki mines. This
improvement in underground mines performance was as a result of a
reduction in the scope and duration of regulator imposed safety
stoppages, successful ramp-up of Khuseleka 2 shaft and productivity
improvements. Mogalakwena mine output was 160,200 platinum ounces,
9% higher than the first half of 2011 due to improved concentrator
recoveries. The increased production was partly offset by lower
volumes from Union North, Thembelani and Tumela mines.
Refined platinum production decreased by 13% to 1.03 million
ounces in the first half of 2012 compared to the same period in
2011 despite higher output from mining operations. This was due to
planned annual maintenance at the converter plant in Rustenburg,
completed by the end of March 2012, experiencing operational and
equipment related difficulties upon restart. These difficulties,
however, have been resolved and the furnace matte converter in June
2012 exceeded the previous monthly record by 5%. Delayed production
is expected to be processed during the third quarter of 2012 as the
converter plant reached steady state operating level shortly after
the completion of maintenance.
Five employees lost their lives during the period and Platinum
extends its sincere condolences to their families, friends and
colleagues. The causes of the fatalities include falls of ground,
tramming and transport related incidents. Loss of life in the
workplace is unacceptable. Our safety performance has improved
since 2007, and we have reduced fatalities and the lost-time-injury
frequency rate by 72% and 42% respectively. While our safety
strategy is still sound, we continue to review and adjust it in the
pursuit of zero harm, to ensure that we specifically target the
major causes of injuries and fatalities. We continue to work
relentlessly with our partners in government and our workforce to
implement more effective means of addressing major risks and
non-compliance with standards. The journey to zero harm remains our
key strategic objective.
Projects
Capital expenditure for the first half of 2012 amounted to $356
million, a 13% decrease (flat in rand terms) on the comparative
period in 2011. An amount of $171 million was spent on projects,
$146 million on stay-in-business capital and $39 million on waste
stripping at Mogalakwena Mine.
The majority of project capital expenditure for the first half
of 2012 was invested on the Twickenham mine ($45 million excluding
pre-production costs), Unki mine ($12 million) and the Khuseleka
ore replacement project ($11 million).
The Bathopele 5 and slag cleaning furnace 2 projects have
recently entered implementation phase and are progressing on
schedule. The Thembelani 2 project has been stopped and a
co-extraction project study of the resource is currently under way,
with a scheduled completion period of three years.
____________________
(1() Equivalent ounces are mined ounces expressed as refined ounces.
Outlook
The main objective of the strategic review announced in February
2012 is to establish a long term portfolio with sustainable
competitive advantage that will deliver through the cycle value for
shareholders and stakeholders. The review covers the entire value
chain, from overhead and indirect costs, resources to mining to
processing, marketing and commercial strategy, as well as the shape
and size of portfolio which will leverage Platinum's industry
leading resource base. The portfolio review is expected to be
completed by the end of the year.
Since the start of the year, the operating environment has
deteriorated further. The rand basket price is under pressure due
to the weaker global economic environment, mining inflation has
remained above the South African consumer price index and labour
unrest has increased across the industry presenting additional
challenges.
We have taken swift and disciplined measures to preserve
Platinum's balance sheet position and support ongoing
operations.
-- Platinum, together with its joint venture partner, has
suspended production at Marikana mine and placed the operation on
care and maintenance. Other joint venture operations are under
review. We are also considering the selective and opportunistic
exit from some marginal assets.
-- The Platinum project portfolio is under review to ensure
effective capital allocation and appropriate prioritisation of
projects. In February, we announced a cut in our 2012 capital
expenditure target from $1.2 billion to $1.0 billion. In light of
the continued market volatility and uncertainty, this is being
further reduced by $100 million to an estimated $900 million for
the full year. We will also continue to focus on asset optimisation
and supply chain management and increasing production from lower
cost mines like Mogalakwena.
-- To conserve cash further, Platinum has also embarked on a
programme to review overhead costs. Significant cuts will be made
to overhead costs over the next 12 to 18 months. As well as
reducing costs, the review is intended to position the organisation
appropriately ahead of any portfolio changes and to simplify
current ways of working.
-- Platinum is also reviewing its marketing and commercial
strategy, having identified a number of opportunities to match its
product offering better to the needs of current and potential
customers and improve its market intelligence and market
development initiatives. We expect to see incremental benefits
develop over the next two years.
Under the auspices of the tripartite Mining Industry Growth
Development and Employment Task Team (MIGDETT), the stakeholders in
the South African Platinum Group Metals mining industry have
established a Platinum Task Team to investigate and action
proposals on how to assist the sector weather the short term
challenges that the industry faces and, in parallel, develop a
common strategy for promoting the sustainable growth and
transformation of the sector in the long term.
As a result of further market deterioration, we are now planning
on total refined production of between 2.4 and 2.5 million platinum
ounces for 2012, but will continue to monitor market conditions
closely with a view to reacting to further soft market demand or to
take advantage of any upturns in demand in the short term. Given
the fixed-cost nature of the business and ongoing input cost
inflation, offset by the significant cost-cutting efforts by
management highlighted above, we believe that unit costs for the
full year will be able to be contained to R15,000 per equivalent
refined platinum ounce.
DIAMONDS
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
--------------------------------------------- -------------- --------------
Share of associate's operating profit 250 450
EBITDA 306 517
Group's associate investment in De Beers(1) 2,382 2,234
Share of Group operating profit 7% 7%
--------------------------------------------- -------------- --------------
(1) Excludes shareholder loans of $309 million (30 June 2011:
$315 million)
Anglo American's recorded share of operating profit from De
Beers of $250 million, was 44% lower than the first half of 2011 as
prices moderated from record levels achieved previously. De Beers
continues to focus on scheduled maintenance and waste stripping
activities in light of lower demand.
All regulatory consents have been granted in relation to Anglo
American's proposed acquisition of Central Holdings Ltd's
(representing the Oppenheimer family interests) 40% interest in De
Beers. The Government of the Republic of Botswana is expected to
indicate its intention regarding its pre-emption rights within the
third quarter of 2012 and accordingly it is anticipated that the
transaction will close during the same quarter.
Markets
De Beers Group sales (including the sales of rough diamonds by
the Diamond Trading Company (DTC)) for the first half of 2012
decreased from $3.9 billion in 2011 to $3.3 billion, primarily as a
result of lower demand for rough diamonds and changing product
requirements from Sightholders. After a very strong first half of
2011, the difficult trading conditions experienced during the
fourth quarter in 2011 continued, as expected, during the first
half of 2012. While consumer demand for polished diamonds remained
relatively healthy, Sightholder demand was impacted by increased
stock in the cutting centres, tightening liquidity and challenging
conditions in India. However, early indications are that the US
market continued to perform well, and the Chinese market, while
slowing considerably, still showed strong positive growth.
Operating performance
De Beers continued to have some success in the first half of
2012 in reducing its lost-time-injury frequency rate. However,
safety remains the first priority and, subsequent to a slope
failure at Debswana's Jwaneng mine, management suspended all
operations in the pit to conduct a comprehensive review of
procedures and risks; pit operations have now resumed, albeit
slowly.
In the first half of 2012, De Beers' production decreased by 13%
to 13.4 million carats. In light of prevailing rough diamond market
trends, and in keeping with the company's stated production
strategy from the fourth quarter of 2011, operations continued to
focus on maintenance and waste stripping backlogs. This strategy
has enabled De Beers to meet Sightholder demand for rough diamonds
while gradually positioning the mines for future increases in
demand.
In downstream activities, Forevermark (the diamond brand owned
by the De Beers family of companies) continues to grow,
particularly in the core markets of China, Japan, India and the US.
The brand has also launched in South Africa, Canada and the UAE
this year, and is on track for the ambitious growth targets
planned.
De Beers Diamond Jewellers saw growth in its core jewellery
market but saw a decline in the high-end market, reflecting overall
retail trends. De Beers' retail network expansion continues with
plans to open three new stores in China before the end of the
year.
Projects
Debswana's Jwaneng mine Cut-8 extension project is progressing
satisfactorily, on schedule and on budget, with infrastructure
construction 98% complete.
In South Africa, De Beers Consolidated Mines' (DBCM) Venetia
Underground Project is progressing through the final approvals and
regulatory assurances.
In Namibia, Namdeb is now ramping up production at Elizabeth Bay
mine.
In Canada, the Gahcho Kue project permitting process is on
schedule.
Outlook
De Beers expects trading conditions in the mid-stream to remain
challenging during the second half of 2012. De Beers will continue
to produce in line with Sightholder demand and invest in
stimulating and capturing consumer demand growth.
Provided there are no unforeseen economic shocks, De Beers
expects to see moderately positive growth in global diamond
jewellery sales for the full year 2012 - albeit at relatively
modest levels, especially when compared to the exceptional growth
levels seen in 2011. In the short term, the US, China, the Gulf and
Japan are expected to contribute the bulk of the growth, while
India and Europe are expected to remain weak.
In the long term, the fundamentals of the diamond industry
remain strong as demand will continue to outstrip supply.
OTHER MINING AND INDUSTRIAL
6 months 6 months
$ million ended ended
(unless otherwise stated) 30 June 2012 30 June 2011
------------------------------------- -------------- --------------
Operating profit 180 136
-------------- --------------
Copebras 29 54
Catalao 45 21
Amapa(1) 112 45
Tarmac (24) (22)
Scaw Metals 28 27
Zinc - 20
Projects and corporate (10) (9)
EBITDA 278 247
Net operating assets 3,504 4,293
Capital expenditure 109 88
Share of Group operating profit 5% 2%
Share of Group net operating assets 8% 9%
------------------------------------- -------------- --------------
(1) In 2012 Amapa has been reclassified from Iron Ore and
Manganese to Other Mining and Industrial to align with internal
management reporting. Comparatives have been reclassified to align
with current year presentation.
Other Mining and Industrial - Copebras and Catalao
Markets
Copebras
Fertiliser demand is expected to increase in 2012 reflecting the
favourable exchange ratios between fertiliser and commodity prices
and the higher product availability supported by higher year-end
inventories in 2011. Dicalcium phosphate sales are expected to be
higher as customers build their stocks.
Catalao
A deteriorating macroeconomic environment in Europe and Japan is
suppressing niobium demand in these regions and, in turn, prices.
This decrease in demand has been partially offset by spot sales in
other regions, such as South Korea and India. China, however,
remains the main driver of demand globally and is likely to drive
near term pricing. In spite of the increased competition and
pressure on prices, Catalao has managed to allocate all produced
tonnages profitably.
Operating performance
Copebras
Operating profit decreased to $29 million, 46% down on the
previous year. This was primarily due to lower international
fertiliser prices combined with the weakening of the Brazilian
real, and increased labour costs (reflecting new union
agreements).
Catalao
Catalao generated an operating profit of $45 million, a 114%
increase on the previous year. Sales volumes of niobium were also
31% higher. This was primarily attributable to an increase in
production due to better performance at the tailings plant and
improvements in the concentration process at the Boa Vista mine.
Production costs have improved due to lower aluminium and power
prices and more efficient use of consumables, combined with the
impact of higher production.
Projects
Catalao
The Boa Vista Fresh Rock (BVFR) project continued to progress
with an additional tranche of capital expenditure approved in June
2012. The existing plant will be adapted to process new rock
instead of oxide ore, leading to an increase in production capacity
to approximately 6,500 tonnes of niobium per year from 3,900 tonnes
produced in 2011.
Outlook
Copebras
The continuing healthy prices for grain encouraged farmers to
bring forward fertiliser purchases during the first half of the
year. These positive prices are expected to be sustained during the
second half of 2012, stimulating fertiliser demand worldwide.
International fertiliser prices started to recover from May as a
consequence of strong demand in Brazil and the beginning of demand
in the US and India for summer crops.
Catalao
Production is expected to decline in the second half of 2012 as
a result of lower grade and recovery due to lower quality ore from
the Boa Vista mine. In addition, tailings production is expected to
decrease as a result of lower niobium grade contained within the
phosphate tailings.
The niobium market is expected to remain under pressure due to a
decrease in demand impacting price as well as sales volumes.
Other Mining and Industrial - Amapa, Tarmac and Scaw
Amapa
Amapa generated an operating profit of $112 million, an increase
of $67 million on the first half of 2011. The higher profit was
primarily due to the reversal of penalty provisions, which were in
place at the end of 2011, as a result of contract
re-negotiations.
Production increased significantly, mainly due to higher mass
recovery in the beneficiation plant as a result of improved
stability of the plant. In addition to improved production, higher
sales were achieved as a result of lower delays associated with
transportable moisture limits.
The favourable impact of improved production and sales, however,
was more than offset by a sharp decrease in sales prices during
2012 compared to the same period last year. Tight cost control and
improved operating efficiencies are in place to mitigate the effect
of the decrease in selling prices.
Anglo American has transformed the operational performance of
Amapa since it acquired the asset in 2008, increasing production
from 1.2 Mt in 2008 to 4.8 Mt in 2011 and an expected 5.5 Mt in
2012 (first six months 2012: 3.0 Mt). As part of our regular
evaluation of our portfolio of assets in order to maximise
shareholder value, however, we are currently exploring the
possibility of divesting of our stake in the Amapa system - an
asset that we have always maintained we do not envisage holding
over the long term.
Tarmac
Tarmac reported an operating loss of $24 million, compared to a
loss of $22 million in the first half of 2011. Tarmac's EBITDA was
positive at $37 million, 21% lower than the same period last
year.
Quarry Materials
Price increases, and further improvements in the use of recycled
asphalt material in the UK Quarry Materials business, have
mitigated the impact that increased oil costs had in the first half
on bitumen used in asphalt. Cement production levels have also been
held up through maximisingoperational efficiencies. The market
continues to decline, however, with weak private sector demand
reducing concrete and aggregates volumes in the first half and
reduced public spend on road building and repairs adversely
affecting asphalt volumes.
The business continues to identify performance improvements,
despite the challenging outlook for 2012, which is characterised by
weaker than expected private sector growth and reduced public
sector spending.
Building Products
An improvement in performance has been driven by strong volume
growth in aircrete blocks, an increase in premium product sales on
bagged aggregates, and the production of sleepers to service the
Network Rail contract. Additional improvements in financial
performance have arisen from actions taken in 2011 which include
the closure of the Precast businesses and the asset impairment
review.
However, performance has been eroded by wet weather during the
second quarter of 2012 which has caused disruption in building
activity and a reduction in retail sales affecting sales
volumes.
The general market remains weak which is resulting in a very
competitive pricing environment to secure the limited sales volumes
available. Cost reduction projects and improvements in operating
efficiencies are high on the agenda to mitigate the impact of lower
sales.
Although a number of initiatives are in progress to improve
performance, the short term market outlook remains difficult.
Scaw Metals
Scaw Metals generated an operating profit of $28 million, a 4%
increase on prior year, largely as a result of improved trading
conditions in the foundry businesses partly offset by weaker
trading conditions within grinding media. The rolled products
business continues to suffer from weak demand and low margins. The
effect of cost containment and internal sales has seen a reduction
in rolled products loss compared to the first six months of
2011.
Cast products showed a marked improvement, owing to increased
demand and market pricing, assisted by a weaker rand. Margins
widened as the benefits of the turnaround strategy started to be
realised. Grinding media showed a decrease in operating profit
compared to prior year due to lower demand from the mining sector
owing to decreased activity as a result of strike actions. Wire rod
products' performance decreased from the prior year on the back of
weak market conditions in the mining and construction sector. Total
production of steel products was 319,100 tonnes, a decrease of 10%
over the prior year.
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This information is provided by RNS
The company news service from the London Stock Exchange
END
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