More on Anglo American
Anglo American: H1 Results
Anglo American, the mining group, reported record results for the half year to June 2005. The company reported ‘headline’ earnings of $1.8bn, up 43% over last year. Headline earnings (as defined by Anglo American) exclude profits or losses on disposals and profits from associates and minority interests. EBITDA rose 25% at $4.2bn for the period, in line with market expectations.
While Anglo American’s performance is impressive, earnings growth lagged those of its peers: BHP Billiton reported at 52% growth in EBITDA and Rio Tinto reported a doubling of underlying earnings. Anglo American has exposure to gold and platinum (which together contributed to 23% of EBITDA in H1), where prices have risen more slowly than base metals. BHP, mines neither of the precious metals and Rio mines gold but no platinum.
The company attributes the strong results to firm prices, improved operating efficiencies and growth in the company’s asset base. Cost savings and efficiency improvements increased by 22% over last year and contributed $303m to the bottom line. The company has spent $1.4bn on capital expenditure in the half year and has a pipeline of $5.1 bn in approved projects.
Anglo’s business is divided into ferrous metals (which made up 21.6% of H1 EBITDA), base metals (19.7%), platinum (13.7%), coal (10.7%), diamonds (7.5%), paper & packaging (10.1%), industrial minerals (7.1%) and gold (9.3%).
All businesses reported growth except diamonds and paper & packaging. The group’s share of attributable operating profits from diamonds (which arise from its independently managed 45% associate, De Beers) declined by 13% to $297m due to a weaker dollar and to tighter margins.
Operating profits in paper and packaging declined by 29% (to $233m) due to poor margins caused by the strength of the euro.
In largest business, ferrous metals, operating profits doubled to $791m due to higher prices for vanadium and iron ore, higher volumes and cost savings. Growth in base metals (the second largest business) was slower, with operating profits increasing by 27% to $721m due higher copper, nickel and zinc prices. Growth was held back because of a production shortfall in copper caused by breakdowns.
The company is reasonably bullish in its outlook and short-term prospects are unimpaired. In the longer term, commodity prices are expected remain high as long as Chinese growth is sustained. High growth in China has offset weaker demand in the OECD countries. The first signs of a revival in Germany, provided it is sustainable, also looks positive.
The main danger to commodity prices could come from a bursting of the house price bubble, which could trigger a slowdown in the US and elsewhere.
The share trades at 1,373p, on a prospective PE (2005 earnings) of 10.6x within the sector range with a yield of 3.2%, which is superior to the sector average.
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