Join our community of smart investors

Anglo lags peers in recovery stakes

RESULTS: Anglo American's operational efficiencies were largely offset by falling commodity prices through the year, but at least the giant Minas Rio iron-ore project is nearing completion.
February 14, 2014

A second year of losses for Anglo American (AAL) suggests the group's rationalisation programme will lag those of other diversified miners, with the capital outlay for this year conceivably up by a fifth. The ongoing strike action affecting the Amplats subsidiary is another source of anxiety. But at least shareholders can take encouragement from record output within Anglo's copper and coking-coal divisions, and from the doubling of underlying profits at De Beers.

IC TIP: Buy at 1556p

Overall, Anglo reported a 7 per cent fall in underlying net profits to $2.7bn (£1.6bn). Although there were no charges to rival last year's near $5bn hit on the troubled Minas Rio iron-ore project, Anglo was still forced to book $3.3bn in impairments. Anglo's new chief executive Mark Cutifani confirmed that Minas Rio should be up and running by the end of this year, which will come as a relief to investors.

Performance initiatives reduced pithead costs last year, with the benefits particularly noticeable in the fourth quarter. Sterling costs were also held in check by the depreciation of both the rand and the Australian dollar. But falling commodity prices - coking coal was down by a quarter - more than offset any accrued benefits.

It is revealing that the lion’s share of Anglo’s investment will be outside of South Africa during 2014. One of the reasons why Anglo’s previous chief executive Cynthia Carroll was forced to stand down was her failure to diversify geographically. And the main bugbear for Anglo continues to be its platinum segment, where the problem of soft industrial demand has been exacerbated by continued labour disruptions. The cost of mining platinum has also been rising as mines become older and deeper. Anglo has consequently been restructuring its loss-making operations in Rustenberg: three mines have been shut and head count reduced by 15 per cent. The group plans to shift production to the Mogalakwena complex, a group of open-pit mines in the Limpopo province. Surface workings are far less costly than deep underground mines, so margins at Mogalakwena will easily outstrip those at Rustenberg once production is scaled up.

ANGLO AMERICAN (AAL)
ORD PRICE:1,556pMARKET VALUE:£22bn
TOUCH:1,555-1,557p12-MONTH HIGH:2,089pLOW: 1,196p
DIVIDEND YIELD:3.3%PE RATIO:na
NET ASSET VALUE:2,272¢NET DEBT:29%

Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
200920.94.0202nil
201028.010.954365
201130.610.851074
2012 (restated)28.7-0.2-11785
201329.31.7-75.085
% change+2---

Ex-div: 19 Mar

Payment: 29 Apr

£1=$1.67