Mr. Mark Cutifani

Anglo American, the global diversified group says its performance in the latest financial results underlines the merits of the business strategy of commodity and geographic diversification. The company has published the results which showed underlying earnings for the first half of 2014 were $1.3 billion, 3% higher than for the same period in 2013, with an underlying operating profit of $2.9 billion, a 10% decrease from $3.3 billion.

The group blamed the generally lower realised prices of commodities which resulted in a reduction of $1.0 billion in underlying operating profit. The lower prices included a 23% decrease in achieved Australian export metallurgical coal prices, a 17% decrease in achieved iron ore prices at Kumba and a 3% decrease in realised copper prices.

Despite a decrease in unit costs at Copper and De Beers, driven by increased production and at Coal Australia and Canada, due to improved operating efficiencies leading to higher production, costs elsewhere were affected by cost pressures and higher waste-stripping. However, the decrease in underlying operating profit was partly offset by the weakening of producer currencies ($0.8 billion) and improved operational performance.

Mark Cutifani, Chief Executive of Anglo American, said the group plans to divest a number of other assets at the appropriate time and to redeploy that capital to support our drive for higher returns and he said he expected ‘our divestments and improved business performance to support a long term net debt target of $10 to $12 billion.’

“Our Driving Value programme is delivering improved operational performance, reflecting a greater focus on mining processes and costs. Across the portfolio, production volumes were up, with the notable exception of Platinum. At Sishen, where the recovery plan is being implemented, we have seen improved mining and production volumes of 5% and expect a further increase in waste volumes in the second half. In our Copper business, the 12% increase in production also demonstrates the benefits of greater mine efficiency and throughput gains,” Cutifani noted.

“I can also report that we are on track to ship first iron ore from our Minas-Rio project in Brazil by the end of this year. At the end of June, we had completed 95% of the project required to achieve this objective. We are commissioning all areas of the operation and expect to complete within the budgeted total capital cost of $8.8 billion.”

Cutifani added that safety is the clearest indicator of how the group is managing the business and is always his first priority as Anglo recorded the first quarter of 2014 with no loss of life and this positive trend in safety performance is continuing, with the key indicators all showing improvement.

He said the company’s total recordable case frequency rate of 0.74 is a 31% improvement compared to FY 2013 and the lowest level ever achieved by Anglo American, while recognising that the Platinum strike did contribute to some of the safety improvements. “We have made progress but it is unacceptable that three of our people have lost their lives in the first six months of this year and that others suffered injury. We are focused on five key areas which are characteristic of effective and sustainable safety management: leadership, planning, risk management, incident management and effective frontline supervision.”

He also bemoaned that the first six months of 2014 for the mining industry have seen ongoing soft demand and declines in average realised prices for most of the commodities Anglo American produces, compared to both the first half of 2013 and 2013 as a whole, reflecting uncertainty surrounding global economic growth prospects in the developed and developing economies.

“As we look at the global economic outlook, uncertainty is likely to persist for the balance of 2014, though there are some encouraging signs that activity is strengthening in our key markets. Our diversified portfolio positions us well for the potential significant further urbanisation and industrialisation required to support growth in China and other emerging economies, while an expanding middle class is expected to support a rising intensity of consumption for our late cycle products. Over the long term, we expect new supply to be constrained and to see tightening market fundamentals and a recovery in price performance.”