| Wed 25 Feb 2004, 11:04 | | Anglo American Plc - Financial Report |
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Anglo American Plc - Financial Report
Release Date: 25/02/2004 10:42:03 Code(s): AGL
Anglo American plc - Financial Report
Anglo American plc
(Incorporated in the United Kingdom)
Registration number: 3564138
Share code: AGL
ISIN: GB0004901517
(the "Company")
News Release
Anglo American"s resilient performance reflects underlying strength of
geographic and product diversity
- Headline earnings(1) of $1,694 million ($1.20 per share), 4% lower than 2002.
Total profit for the year of $1,592 million, a 2% increase over the prior year.
- Adverse impact of strong South African rand and Australian dollar. Currency
movements reduce headline earnings by $578 million. Despite this significant
factor, Anglo American maintained a steady earnings and EBITDA(2) performance.
- Strong cash generation: EBITDA of $4.8 billion; EBITDA interest cover(2) of
12.7 times; EBITDA return on total capital(2) of 16.9%.
- Recommended increased final dividend of 39 US cents, giving a total dividend
for 2003 of 54 US cents per ordinary share, up 6%.
- Diversified product portfolio underpinned performance: record earnings from
Diamonds, strong contributions from Base and Ferrous Metals, Paper and Packaging
and Industrial Minerals offset lower earnings from Platinum, Gold and Coal.
- Balanced geographical exposure: split of headline earnings - Europe 26%; South
Africa 34%; Americas 18% and Rest of World 22%.
- Key acquisitions delivering value across the Group - Minera Sur Andes
(formerly Disputada) contributed $111 million to headline earnings in first year
and reported increased reserves.
- Further cost savings and efficiency improvements of $335 million in 2003,
significantly ahead of $200 million target.
- $2 billion projects commissioned during the year. Path to growth: $6 billion
expansion programme - a strong pipeline of projects across all key commodities.
HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER Year Year Change
2003 ended ended
31.12.03 31.12.02
US$ million except per share amounts
Turnover including share of joint 24,909 20,497 22%
ventures and associates
Total operating profit for the year 2,606 3,251 (20)%
Total operating profit before 2,892 3,332 (13)%
operating exceptional items
Profit for the year 1,592 1,563 2%
Profit for the year before exceptional 1,498 (5)%
items 1,583
Headline earnings for the year (1) 1,694 1,759 (4)%
Net operating assets (3) 29,709 21,122 41%
EBITDA (2) 4,785 4,792 -
Net cash inflow from operating 3,184 3,618 (12)%
activities
Capital expenditure 3,025 2,139 41%
Earnings per share (US$):
Profit for the year 1.13 1.11 2%
Profit for the year before 1.06 1.12 (5)%
exceptional items
Headline earnings for the year 1.20 1.25 (4)%
Dividend for the year (US cents per 54.0 51.0
share) 6%
(1) See note 7 for basis of calculation of headline earnings.
(2) EBITDA is operating profit before exceptional items plus depreciation and
amortisation of subsidiaries and share of EBITDA of joint ventures and
associates. EBITDA interest cover is EBITDA divided by net interest expense
after adjusting for other net financial income. EBITDA return on capital is
EBITDA divided by average total capital. EBITDA is reconciled to net cash
inflow from operating activities above the cash flow statement.
(3) See note 2 for definition of net operating assets.
Tony Trahar, Chief Executive, said:
"The Group recorded headline earnings of $1,694 million, a resilient performance
during a challenging year for our businesses. This solid achievement reflects
our success in building a portfolio of high quality assets and maintaining a
balanced geographic and product exposure. Group cash flow (EBITDA) remained
strong and was virtually unchanged at $4.79 billion for the year.
Operating performances were generally very good across the board, though the
Group"s South African and Australian operations were impacted by a substantially
weaker US dollar. This was partially offset by higher dollar prices for gold,
diamonds, platinum and base metals and by the further expansion of the Group
through acquisition and the commissioning of brownfield and greenfield projects
during the year.
Anglo American also benefited from the full year earnings contributions from
acquisitions made recently across the Group. Our strategy of pursuing growth
through both acquisitions and organic projects is now being reflected in
significant production volume growth in most of our product areas.
A major feature was the turnaround in the performance of Base Metals. The
integration of the Minera Sur Andes (formerly Disputada) copper operations in
Chile has been successfully completed. The business is now well positioned to
benefit from stronger prices.
In terms of iron ore, we have delivered our long-term strategic goal of entering
the global iron ore market and this will present major expansion opportunities
in the medium term.
Our focus on driving returns has produced significant results with group-wide
cost cutting programmes. We have consistently exceeded our targets in terms of
cost savings and efficiency improvements and over the last two years achieved
total savings of just over $600 million.
The positive outlook for a number of our commodities provides an encouraging
platform for the year ahead. Improved economic growth in the US and Japan,
combined with the strong industrial performance of China, is encouraging. After
two decades of generally flat or declining real prices for metals, despite a
background of steadily increasing demand, the backdrop for commodities is more
positive than it has been for a number of years. Although the potential for a
further weakening of the US dollar remains a cause for concern, this is likely
to be offset by rising dollar prices for our key commodities.
The Group offers a unique mix of geographic and product diversity which
insulates it from the volatility associated with single product cycles. Our
gold, platinum, diamond, coal, base and ferrous metals businesses are benefiting
from recent price rises and should continue to enjoy steady growth. In
addition, paper and packaging and industrial minerals are generating strong cash
flows. The Group will also benefit from a number of new projects and recent
acquisitions. On the basis of prevailing commodity prices and exchange rates,
the Group should achieve good growth in 2004.
REVIEW OF 2003
Financial results:
Headline earnings per share were $1.20, a reduction of 4% from the prior year.
Strong performances by many of the Group"s businesses were offset by the
significant impact on the Group"s results of the stronger South African rand
against the US dollar. Despite the weakening of the dollar, headline earnings
reached $1,694 million resulting from an outstanding performance from De Beers
and strong contributions from Base Metals, Industrial Minerals and Paper and
Packaging. Lower earnings were recorded by Anglo Platinum, AngloGold, the Coal
business and Ferrous Metals & Industries.
Profit for the year was $1,592 million compared with $1,563 million in the prior
year. The increased profit for 2003 is principally due to profits on the sale of
the Group"s interests in Li & Fung and FirstRand Limited, reduced minority
interests and a reduced tax rate.
Diamonds recorded a 19% increase on 2002 headline earnings to $386 million (23%
of Anglo American"s total headline earnings) and was the largest contributor to
the Group"s headline earnings. Sustained diamond retail demand and, in
particular, stronger than expected Thanksgiving/Christmas demand in the US
resulted in an improved performance.
Platinum recorded a 42% decrease in headline earnings to $205 million (12% of
Anglo American"s total) due primarily to the strength of the rand. This effect
was partially offset by a higher average dollar basket price of platinum group
metals sold and higher sales volumes. Operating costs increased as a result of
increased production volumes from ramp-up mining and smelting operations. The
expansion plans to increase platinum output are continuing but have been slowed
down due to the impact of the stronger than anticipated rand/dollar exchange
rate on cash generated from operations and project returns.
Gold"s contribution to headline earnings decreased by 19% to $167 million (10%
of Anglo American"s total) as a result of lower ore grades at Morila in Mali,
the sale of Jerritt Canyon and the weakening of the US dollar against local
currencies in those countries where AngloGold operates. The stronger local
currencies also impacted total cash costs which increased from $161 to $229 per
ounce.
Coal recorded headline earnings of $232 million, 13% below the prior year (14%
of Anglo American"s total). In spite of an 8% increase in production to 87
million tonnes and excellent cost containment, the appreciation of the rand and
the Australian dollar significantly impacted earnings for the year.
Base Metals recorded improved headline earnings of $206 million (12% of Anglo
American"s total), a 199% increase over 2002. A major turnaround has been
achieved in Base Metals. The integration of Minera Sur Andes, which had its
first full year of contribution in 2003, has been successfully completed. Copper
and nickel operations benefited from higher prices in the second half while zinc
prices remained relatively flat.
Industrial Minerals increased headline earnings by 17% to $270 million (16% of
Anglo American"s total) following another year of significant improvement.
Tarmac"s performance benefited from the full year contribution of acquisitions
made in 2002, efficiency improvements in the UK and the strength of European
currencies against the US dollar. Copebras also contributed to the increase, the
new plant at Goias allowing it to benefit more fully from the buoyant Brazilian
market conditions for phosphate fertilizers.
Paper and Packaging contributed $368 million to headline earnings, 2% lower than
the prior year (22% of Anglo American"s total). In spite of weaker market
conditions in both the packaging and office communications sectors, Paper and
Packaging"s steady performance reflected the contribution of full year earnings
from businesses acquired in 2002, combined with incremental cost savings from
process efficiencies and integration synergies and additional production
capacity.
Ferrous Metals & Industries contributed $107 million to headline earnings (6% of
Anglo American"s total), a decrease of 15% over 2002. This was due largely to
significantly lower earnings from Tongaat-Hulett which was severely impacted by
the strength of the rand together with low international prices. Highveld Steel
also suffered from adverse currency movements, while Scaw Metals recorded an
improved performance on the back of a full-year contribution from Moly-Cop,
acquired in 2002.
GROWTH THROUGH ACQUISITIONS
Anglo American has developed a strong track record in terms of acquisitions. The
EBITDA cash flow returns on the key acquisitions of Minera Sur Andes, Shell
Coal, Syktyvkar and Tarmac range between 16% and 23%. The acquisition of Minera
Sur Andes late in 2002 has proved extremely attractive for the Group. Not only
were the projected synergies exceeded but the operations were earnings accretive
in their first full year after acquisition, at an average copper price of 81 US
cents/lb. Additional reserves totalling 368 million tonnes have also been
identified during the year, thereby extending considerably the life of this
large, low-cost producer at a time when few large, new copper mines are coming
into production.
Since 1999, the Group has achieved significant volume growth: for platinum,
volume growth has been 17%, 40% for diamonds, 67% for copper, 57% for nickel,
197% for zinc, 40% for coal, 152% for aggregates, 166% for uncoated woodfree
paper, 158% for packaging papers, 346% for industrial sacks. In terms of
geographic exposure, significant progress has been made in transforming Anglo
American"s asset base into a more diverse platform with 30% of its assets today
in Europe, 40% in South Africa,
16% in the Americas and the balance spread across the globe.
Further acquisitions were announced in 2003:
- Anglo American increased its shareholding in Anglo Platinum from 67.6% to
74.1% for a total of $533 million, as part of its ongoing programme of buying
shares in the market from time to time.
- In November, the Ghanaian government gave its backing to AngloGold"s bid to
bring about a merger with Ashanti Goldfields. The merger, which is expected to
be completed in the first half of 2004, will create one of the world"s largest
gold mining companies in terms of reserves and gold production. Ashanti
Goldfields has six operations spread across the African continent including the
long-life Obuasi mine, where $1 billion is estimated to be spent over its
remaining life, including $570 million on the Obuasi Deeps Project. During the
year, Anglo American increased its shareholding in AngloGold by 3.1% to 54.5%
for a total of $301 million.
- In October, Anglo American"s shareholding in Kumba increased to just over 35%
following approval from South Africa"s Competition Tribunal and, as a
consequence, the Company extended a mandatory cash offer to Kumba"s
shareholders, resulting in Anglo American"s stake increasing to 66.6% for
consideration of $539 million for the mandatory offer. Discussions are
continuing with the South African government and Black Economic Empowerment
partners.
- Anglo Industrial Minerals further strengthened its European presence with
acquisitions in the UK, France, Spain, Germany and the Czech Republic totalling
$100 million. Tarmac is now the largest aggregates producer in the Czech
Republic, and is well placed to benefit from the country"s forthcoming entry
into the EU.
- Anglo Paper and Packaging continued to develop and expand its European and
South African asset base. In December, Mondi Packaging acquired the Austrian
Bauernfeind Group for $118 million, a corrugated paper and packaging business
with extensive European operations. Frantschach acquired, subject to competition
approval, the industrial sack business of Mexico"s Copamex for $52 million, one
of the world"s largest producers of industrial sacks.
ORGANIC GROWTH - $6 BILLION PROJECT PIPELINE
Anglo American has one of the strongest pipelines of growth projects in the
mining and natural-resource industry, spanning all of its key products, with
around $6 billion of approved project capital expenditure over the next five
years. A number of projects were successfully commissioned during 2003,
including the $454 million Skorpion zinc project in Namibia which has already
reached 75% of design capacity levels. The timing of this project appears
opportune with zinc prices and demand starting to recover from recent record
lows. At Hudson Bay, the $276 million 777 project was substantially completed
ahead of schedule and within budget.
The $233 million Ruzomberok paper mill project in Slovakia was also commissioned
successfully increasing the group"s paper production capacity by some 100,000
tonnes. Industrial Minerals" new phosphate fertilizer plant at Goias in Brazil
was completed during the year, $19 million under its budgeted cost of $147
million and is operating at full capacity. Other developments in the project
pipeline include:
- The $173 million cement plant at Buxton, which is undergoing final
commissioning trials, is expected to be in full production in the second quarter
of 2004. In China, Tarmac is developing a quarry 140 kilometres from Shanghai.
The quarry is the nearest known reserve of top-quality asphalting aggregates to
China"s booming commercial capital.
- In Paper and Packaging, the $221 million Richards Bay pulp mill expansion in
South Africa, set to increase pulp production capacity by 40% to 475,000 tonnes
by 2005, and the $150 million upgrade of the Merebank paper mill, which will
increase production by 160,000 tonnes per annum by 2005, are both on track.
- In Base Metals, the $288 million (being the Group"s share) Rosario project at
Collahuasi and Black Mountain"s $110 million Deeps project are on budget, with
Collahuasi scheduled to complete and Black Mountain scheduled to produce its
first ore in 2004.
- As part of Anglo Platinum"s continuing expansion programme, Modikwa will
build up to its full production level by the end of 2004 and the Western Limb
Tailings Retreatment project commenced operations in January 2004. Polokwane
Smelter and the Anglo Platinum Converting Process will increase throughput in
line with increasing volumes of mined and purchased material.
- In Gold, the $191 million Mponeng deepening project is due to be completed by
the end of 2004.
- Major expansionary capital in the Coal business in 2004 will include the
Kriel South, as well as the Greenside and Kleinkopje expansions in South Africa.
In Australia, a feasibility study is under way regarding the development of the
remainder of the Dawson complex, which incorporates Moura and Theodore while
work continues on several other projects. In Colombia, Cerrejon is expanding its
operations to an output of 28 million tonnes of coal annually by 2007.
Other developments during 2003:
In May, Anglo American sold its 34.5% stake in Anglovaal Mining Limited to a
black empowerment consortium for $231 million. In line with its strategy of
disposing of non-core assets, Anglo American sold its 11.5% stake in Avgold
Limited for $88 million and also disposed of its remaining stakes in Li & Fung
Limited and FirstRand Limited for $269 million and $176 million respectively.
Restructuring in Base Metals continued in line with its strategy of focusing on
fewer, large, long life operations, disposing of its investments in Anaconda
Nickel in Australia and Bindura Nickel in Zimbabwe in 2003 and its stake in the
Nkomati Joint Venture in February 2004.
Other developments during the year included the launch of Anglo American"s
inaugural euro-denominated benchmark bond offering, the five-year bond raising
Euro1.0 billion, and its inaugural 7 year sterling denominated benchmark bond
offering, which was issued under the existing EMTN programme, raising GBP300
million. The proceeds from both these issues, made through Anglo American
Capital plc, have been used to repay existing bank borrowings.
Cost savings:
All businesses across the Group continued to focus on efficiency initiatives and
cost control during 2003. The total cost savings achieved amounted to $335
million, of which operating efficiencies (comprising maintenance, administration
and overheads, labour and materials and supplies) realised $217 million,
restructuring and synergies $18 million and procurement $100 million.
Black Economic Empowerment:
The legislative framework governing the transformation of the South African
Mining Industry is continuing to emerge. Promulgation of the Minerals and
Petroleum Resources Development Act is expected later this year together with
the regulations governing its application. The process of conversion from old
order to new order mineral rights will then begin. The South African government
has confirmed that regarding the Royalties Bill, royalties based on turnover
will only become payable in 2009 when the conversion process is complete.
In terms of Black Economic Empowerment (BEE), the Group continues to make steady
progress having now recorded over $2 billion in major transactions and over $1.5
billion in procurement and small business promotion spend. The Group is making
good progress towards complying with the Mining Charter BEE targets.
Exceptional items:Operating exceptional charges amounted to $286 million. These
included impairments or write-downs of $208 million to the carrying value of
Hudson Bay in Base Metals, $20 million against the Boyongan project by
Exploration and $43 million to mining assets in AngloGold, principally Savuka.
An exceptional finance charge of $13 million relates to the Group"s share of De
Beers" costs on the early redemption of debt.
Non-operating exceptional gains amounted to $386 million. These included $163
million for the profit on sale of the Group"s remaining holding in Li & Fung
Limited, $117 million for the profit on the sale of shares in FirstRand Limited,
$51 million for the profit on the sale of the Group"s stake in Avgold Limited
and $42 million for sale of shares in East Africa Gold mines and Randgold
Resources
Taxation:
The effective rate of taxation for the Group before exceptional items was 29%.
This saw a reduction from the effective rate of 33% in 2002, due to the impact
of a number of one-off deferred tax benefits arising from tax rate reductions in
a number of countries, benefits from losses not previously recognised, and the
change in the mix of earnings contributed by the Group"s businesses.
Dividend:
The directors recommend a final dividend of 39 US cents per share to be paid on
29 April 2004. Total dividends for the year will amount to 54 US cents per
share, increasing last year"s total dividend by 6%.
Outlook:
The positive outlook for a number of Anglo American"s commodities provides an
encouraging platform for the year ahead. Improved economic growth in the US and
Japan, combined with the strong industrial performance of China, is encouraging.
After two decades of generally flat or declining real prices for metals, despite
a background of steadily increasing demand, the backdrop for commodities is more
positive than it has been for a number of years. Although the potential for a
further weakening of the US dollar remains a cause for concern, this is likely
to be offset by rising dollar prices for the Group"s key commodities.
The Group offers a unique mix of geographic and product diversity which
insulates it from the volatility associated with single product cycles. Anglo
American"s gold, platinum, diamond, coal, base and ferrous metals businesses are
benefiting from recent price rises and should continue to enjoy steady growth.
In addition, paper and packaging and industrial minerals are generating strong
cash flows. The Group will also benefit from a number of new projects and
recent acquisitions. On the basis of prevailing commodity prices and exchange
rates, the Group should achieve good growth in 2004.
For further information:
Anglo American - London
Investor Relations Media Relations
Nick von Schirnding Kate Aindow
Tel: +44 207 698 8540 Tel: +44 207 698 8619
Anglo American - Johannesburg
Investor Relations Media Relations
Anne Dunn Marion Dixon
Tel: +27 11 638 4730 Tel: +27 11 638 3001
Notes to Editors:
Anglo American plc with its subsidiaries, joint ventures and associates is a
global leader in the mining and natural resource sectors. It has significant and
focused interests in gold, platinum, diamonds, coal, base metals, ferrous metals
and industries, industrial minerals and paper and packaging as well as financial
and technical strength. The Group is geographically diverse, with operations in
Africa, Europe, South and North America and Australia and Asia.
(www.angloamerican.co.uk)
Note: Throughout this press release `$" denotes United States dollars.
OPERATIONS REVIEW
Diamonds
$ million 2003 2002
Total operating profit 562 541
Headline earnings 386 324
Group"s share of De Beers" net assets(1) 2,706 2,149
Share of Group headline earnings (%) 23 18
In 2003, the Group"s share of De Beers" operating profit was $21 million higher
at $562 million, while
De Beers" contribution to Anglo American"s headline earnings was $386 million.
Increased sales at higher prices and lower financing costs more than compensated
for the negative impact of the significant appreciation of the South African
rand against the dollar. Sales by the Diamond Trading Company (DTC), the
marketing arm of De Beers, were 7% higher at $5.52 billion. Diamond stocks were
reduced further by nearly $700 million during the year and, for the second year
running, operating cash flow of $1.6 billion was generated. This enabled the
group to reduce net interest-bearing debt from $1.72 billion to $906 million and
to reduce net gearing to 15% (2002: 28%).
Overall, 2003 was a good year for the diamond industry, with further encouraging
growth in retail sales of diamond jewellery, up 6% in dollar terms. There was
particularly strong growth in sales in the second six months as the world
economy and consumer confidence rebounded. The USA, which accounts for over 50%
of world diamond jewellery sales, was particularly strong, as were India, China
and the UK. Encouragingly, Japan also recorded growth for the first time in
several years.
The combined total production of De Beers and its partners, Debswana and Namdeb,
totalled 43.9 million carats (2002: 40.2 million carats). The Combined Treatment
Plant in Kimberley, South Africa, was fully commissioned during the year.
De Beers had a strong first sight in 2004 at which it raised its rough diamond
prices by a further 3% and there is optimism that 2004 will be another good year
for the diamond industry. Macro-economic indicators are positive for the global
economy and there is growing evidence that the transformation of the diamond
industry, stimulated by De Beers" Supplier of Choice strategy, is producing the
desired results. Greater investment by the trade in marketing and branding is
driving demand for diamond jewellery and helping diamonds to gain a larger share
of the luxury goods sector.
(1) De Beers is an associate of the Group. The Group"s share of De Beers" net
assets is disclosed. The figures for share of Group net operating assets shown
for other businesses relate to the Group"s subsidiaries only.
Platinum
$ million 2003 2002
Total operating profit 433 802
Total operating profit before 447 802
exceptionals
Headline earnings 205 351
Net operating assets 6,119 3,580
Capital expenditure 1,004 586
Share of Group headline earnings (%) 12 20
Share of Group net operating assets (%) 21 17
Anglo Platinum"s contribution to headline earnings dipped sharply to 12% from
2002"s 20%, while operating profit was 46% lower at $433 million. The adverse
impact of the firmer rand was only partly compensated by improved average dollar
prices for platinum group metals (PGMs) and higher sales.
The average realised price of PGMs and nickel in dollars was slightly higher in
2003. Platinum and nickel moved upward, while palladium and rhodium declined.
Platinum, at $696 per ounce, gained $152, with nickel moving upward from $3.03
to $4.07 per pound. Platinum"s sister metals, palladium and rhodium, were both
down, at $198 per ounce (2002: $329) and $527 per ounce (2002: $831),
respectively.
During 2003, the Polokwane smelter was successfully commissioned, as were the
new slag-cleaning furnace and the Anglo Platinum Converting Process plant near
Rustenburg. Total platinum received at the smelters, including platinum
purchased from joint venture partners, increased by 8%, while refined production
rose by 2.5% to 2.3 million ounces.
The robustness of the rand continues to have a major impact on operating
margins, cash generation and the future funding of new projects. In consequence,
the expansion plan to raise platinum output from around 2 million ounces a year
to 3.5 million by the end of 2006 has been slowed down, with a new target of 2.9
million ounces. Notwithstanding this, the company"s long-term strategy to grow
markets for PGMs, to expand production to meet that growing demand, and to
optimise value in existing operations remains in place. In light of its funding
requirements, on 16 February 2004 Anglo Platinum announced a R4 billion ($570
million) convertible preference share offer. Anglo American will be subscribing
for its pro rata share of the issue and continues to believe in the fundamental
long-term attraction of the platinum business.
In 2004, Anglo Platinum plans to raise platinum output to 2.45 million ounces.
The platinum price is expected to remain firm, supported by a continuing supply
deficit. The palladium price, despite firming demand, is largely dependent on
Russian supply patterns.
Gold
$ million 2003 2002
Total operating profit 326 463
Total operating profit before 369 463
exceptional items
Headline earnings 167 205
Net operating assets 3,302 2,511
Capital expenditure 339 246
Share of Group headline earnings (%) 10 12
Share of Group net operating assets (%) 11 12
In 2003, a combination of stronger currencies in most of AngloGold"s operating
regions, as well as inflation and lower ore grade had a significant negative
impact on AngloGold"s costs, margins and earnings. This was partly offset by a
20% increase in the dollar gold price. Headline earnings fell by 19% to $167
million, while operating profit was 30% lower at $326 million. Gold production
declined by 5% to 5.6 million ounces following the sale of Jerritt Canyon in the
United States and lower ore grades at Morila in Mali. Total cash costs increased
from $161 to $229 per ounce.
AngloGold has a number of major capital projects in South Africa, which will
yield some 12 million ounces of gold production over their lives, while future
capital projects could add a further 7.5 million ounces. Potential growth
projects elsewhere include the Cuiaba expansion in Brazil and the Sunrise Dam
underground project and Boddington mine in Australia, which together could add a
further 7 million ounces of gold production. The completion of the AngloGold-
Ashanti merger would pave the way for the exploitation of Obuasi Deeps in Ghana,
extending Obuasi"s life by some 20 years.
Production in 2004 is expected to decrease to some 5.4 million ounces, following
the sale of Jerritt Canyon, the closure of Union Reefs in Australia and lower
grades at Morila in Mali. However, following the expected completion of the
Ashanti deal during April, AngloGold is anticipating that production will
increase to some 6.6 million ounces. Assuming an exchange rate of R7.00 to the
dollar, AngloGold is expecting total unit cash costs to rise to $238 per ounce
and capital expenditure to increase to $589 million.
Many of the economic factors which are negative for the US currency have been,
conversely, incentives for investors to buy gold. It is expected that these
factors will remain in play in the year ahead, and there is good reason to
expect gold price strength to be maintained.
Coal
$ million 2003 2002
Total operating profit 333 427
South Africa 133 247
Australia 130 130
South America 70 50
Headline earnings 232 266
Net operating assets 2,152 1,658
Capital expenditure 207 142
Share of Group headline earnings (%) 14 15
Share of Group net operating assets (%) 7 8
Anglo Coal"s operating profit was 22% down at $333 million, mainly as a result
of the appreciation of the South African rand and Australian dollar, while
headline earnings declined by 13% to $232 million. Production increased by 8% to
87 million tonnes.
Operating profit for South African-sourced coal fell by 46% to $133 million. The
effects of the rand"s 28% appreciation(1) were partially offset by production
and sales increases, as well as by rigorous cost control. Major expansionary
capital projects, including the Kriel South project and the Greenside and
Kleinkopje expansions, are progressing to plan.
The Australian operations maintained operating profit at $130 million.
Attributable saleable coal production rose by 4% to 26.1 million tonnes, while
attributable sales were 6% lower at 26.4 million tonnes. The longwall mines at
Dartbrook and Moranbah had a good first six months with record production but
technical problems slowed production in the second half of the year. Drayton
production was steady, while both Moura and German Creek exceeded previous
performances. Theodore commenced production in September. Grasstree remains on
schedule for start-up of production during 2006. Full production at Kayuga
should be reached in 2004. A significant fall of ground in January 2004 at
Moranbah North will reduce production by some 10% compared with 2003. The effect
on earnings will be felt in the first half of 2004.
Operating profit at the South American operations rose by 40% to $70 million. In
Colombia, synergies achieved as a result of merging Cerrejon Zona Norte and
Carbones del Cerrejon exceeded expectations. The operation is now being expanded
from 22 million to reach 28 million tonnes per annum by 2007. Carbones del
Guasare in Venezuela was hit by the national strike at the beginning of 2003 and
subsequently by problems in the administration of the exchange controls imposed
at that time.
In 2004 average coal prices are expected to be significantly better than those
in 2003, while the upward trend looks set to continue for some time yet in
respect of export coal prices.
(1) increase in average exchange rate year on year
Base Metals
$ million 2003 2002
Total operating profit before exceptional 286 133
items
Copper 269 110
Nickel, Niobium, Mineral Sands 106 94
Zinc (62) (51)
Other (27) (20)
Exceptional items (208) (51)
Total operating profit after exceptional 78 82
items
Headline earnings 206 69
Net operating assets 4,087 3,617
Capital expenditure 352 346
Share of Group headline earnings (%) 12 4
Share of Group net operating assets (%) 14 17
Headline earnings grew strongly to $206 million from $69 million in 2002.
Operating profit before exceptionals increased from $133 million to $286
million.
The average copper price increased from 70.6 US cents/lb to 80.7 US cents/lb,
nickel moved from 307 US cents/lb to 437 cents/lb, while zinc prices remained
roughly flat at 37.6 US cents/lb (2002: 35.3 US cents/lb). Commodity price rises
were offset by US dollar weakness against the local currencies of many
operations.
Attributable copper production rose from 497,700 tonnes to 708,800 tonnes, with
Minera Sur Andes (formerly Disputada) contributing 278,300 tonnes. Collahuasi"s
$654 million Rosario Project is on budget and on schedule to enter production in
mid-2004.
Attributable nickel output totalled 24,900 tonnes (2002: 25,600 tonnes).
Codemin"s production rose 7%, while Loma de Niquel attained design capacity,
with output rising to 17,200 tonnes. The $67 million Codemin II project to treat
Barro Alto ore is scheduled to enter production in early 2005. At Catalao,
production and sales were maintained. Namakwa"s output of zircon and rutile
products declined following a fire in October and profits were severely impacted
by the strong rand.
Attributable zinc output rose from 211,500 tonnes to 360,500 tonnes. Hudson
Bay"s zinc output rose 9% to a record 117,900 tonnes. Skorpion produced 47,400
tonnes and is on target to achieve design throughput of 150,000 tonnes per annum
by the end of 2004. Lisheen achieved record output of 169,300 tonnes. At Hudson
Bay, the $276 million 777 project was substantially completed ahead of schedule
and within budget. Black Mountain"s $110 million Deeps project is on budget and
scheduled to deliver first ore in late 2004.
Robust global growth is widely forecast for 2004. However, Chinese demand will
have to remain very firm, and OECD demand improve markedly, to sustain prices at
their present levels. Nevertheless, the outlook for base metals is more
encouraging than at any time in the past five years.
Industrial Minerals
$ million 2003 2002
Total operating profit 325 277
Tarmac 290 253
Copebras 35 24
Headline earnings 270 231
Net operating assets 4,304 3,848
Capital expenditure 316 363
Share of Group headline earnings (%) 16 13
Share of Group net operating assets (%) 14 18
Headline earnings were 17% higher at $270 million, with Tarmac contributing $256
million, a rise of 20%. Operating profit also improved by 17% to $325 million.
During 2003, Tarmac made ten acquisitions, thereby widening its asphalt and road
contracting interests in the UK, and bolstering its aggregates businesses in
France, Spain, Germany and the Czech Republic. In China, Tarmac is developing a
quarry approximately 140 kilometres from Shanghai.
In the UK, three new dry silo mortar plants were constructed, underpinning
Tarmac"s leadership position in the mortar market. The core aggregates
businesses in the UK all improved their profitability in a disappointing market,
while the cement business at Buxton had a satisfactory year. The new plant
should commence operation in the second quarter of 2004. In continental Europe,
operating profit increased by 56%, reflecting continuing strong market
conditions in Spain and a full-year contribution from Mavike. France suffered
weak market conditions, while the businesses in eastern Europe moved forward
satisfactorily.
The Middle Eastern operations strongly increased operating profit owing to
buoyant market conditions, while the Far East business also had an improved
year.
Copebras" operating profit increased by 46% due to continued strong demand for
fertilizers and higher prices. The new plant at Goias is already operating at
full capacity.
In the UK the challenge will be to improve margins in a highly competitive
market while at least maintaining market share. Difficult trading conditions are
expected to continue in Germany. However, EU entry is expected to lead to an
improvement in demand in Poland and the Czech Republic. In Spain, demand should
remain firm, but France may see some further weakening. Brazilian fertilizer
demand is expected to remain strong.
Paper and Packaging
$ million 2003 2002
Total operating profit 656 649
Europe 471 434
South Africa 185 215
Headline earnings 368 376
Net operating assets 4,820 3,897
Capital expenditure 601 365
Share of Group headline earnings (%) 22 21
Share of Group net operating assets (%) 16 18
Headline earnings were $368 million, a 2% decrease on 2002, while operating
profit of $656 million was marginally higher. Operating profit at Mondi Europe
increased by 9% to $471 million in spite of weaker market conditions in both the
packaging and office communications sectors. In Slovakia, the $233 million
modernisation and expansion at the Ruzomberok pulp and paper mill proceeded
according to schedule. Annual output is expected to increase by 100,000 tonnes
of paper in 2004 and 105,000 tonnes of pulp by 2005.
Neusiedler Syktyvkar in Russia and the La Rochette corrugated packaging plants
in France and the UK have been fully integrated with the rest of the group. In
December, the Bauernfeind corrugated paper and packaging business was acquired,
thereby achieving a further step towards attaining critical mass in European
markets. Frantschach also acquired (subject to competition approval) the sack
business of Mexican industrial packaging group Copamex, providing the
opportunity to expand in North America.
In South Africa, in difficult external trading conditions, operating profits
reduced by only 14% to $185 million. The stronger rand resulted in increasing
pressure on domestic prices and lower export margins. However, improved
operating efficiencies and higher outputs, as well as initiatives to sustain
market share and grow volumes, compensated for much of the negative impact of
prices. The Richards Bay mill modernisation and expansion is progressing well,
with completion due in April 2005. The upgrade of Merebank"s PM1 machine, with
the plan to produce 250,000 tonnes per year of uncoated woodfree papers from
late 2005, has been approved.
Mondi will continue to focus on operating efficiencies, capitalising on recent
expansions and extracting synergistic benefits from the integration of
acquisitions. General economic conditions are expected to remain weak, with the
dollar"s current low levels and a buoyant euro creating difficult trading
conditions with margins flat at best.
Ferrous Metals & Industries
$ million 2003 2002
Ferrous Metals operating profit 156 150
Industries operating profit 52 114
Total operating profit 208 264
Kumba 33 -
Highveld Steel 11 38
Scaw Metals 70 51
Samancor 41 48
Boart Longyear 33 31
Tongaat-Hulett 10 96
Terra 14 (3)
Other (4) 3
Headline earnings 107 126
Net operating assets 4,629 1,696
Capital expenditure 194 85
Share of Group headline earnings (%)
6 7
Share of Group net operating assets (%)
16 8
Headline earnings were $107 million (2002: $126 million). Operating profit was
$56 million lower at
$208 million, mainly as a result of sharply reduced earnings from Tongaat-Hulett
in a year when many operations were affected by the strengthening South African
rand.
In December, control was acquired of Kumba, the world"s fifth largest iron ore
producer, with attractive growth prospects in South Africa and Australia. In
2003, Kumba contributed $33 million to operating profit.
In 2003, Scaw"s operating profit rose by $19 million to $70 million, which
included a $21 million full-year contribution from Moly-Cop. Highveld"s
operating profit was impacted by the appreciating rand and fell by $27 million
to $11 million and Samancor"s contribution to operating profit reduced by $7
million to
$41 million. Boart Longyear"s operating profit was $2 million higher at $33
million. Tongaat-Hulett"s operating profit fell to $10 million from $96
million. This severe downturn arose from a combination of factors that included
a firming rand, lower world sugar and aluminium prices, and substantially higher
maize input costs. Terra turned an operating loss of $3 million into an
attributable operating profit of $14 million.
The outlook for 2004 is cautiously optimistic, with the possibility of higher
ferrous metal prices. Scaw and Highveld are likely to benefit from an improved
domestic market. Profitability should be restored to more normal levels at
Tongaat-Hulett through increasing aluminium volumes and more stable maize-
procurement costs. Attention is now being focused on unlocking value for
shareholders in Highveld Steel and Tongaat-Hulett.
Exploration
In 2003, total Group cash expenditure on exploration was $105 million including
$50 million spent by Base Metals, $11 million by Anglo Platinum and $36 million
by AngloGold. In addition, there was a non-cash exceptional charge of $20
million against the Boyongan project in the Philippines.
Base Metals" exploration efforts focused on areas most likely to produce
enhanced results, including significant brownfields exploration around
operations. The rationalisation programme continued in 2003 with closure of the
Zambian and DRC country offices and reduction of global staff.
Drilling adjacent to the Chilean copper operations intersected several potential
new resources. Copper was also targeted in Brazil, Mexico, Peru, Philippines and
Sweden. A nickel sulphide programme focused in the Arctic had early success,
with nickel-copper-platinum group elements drill intersections at West Raglan in
northern Quebec. Zinc exploration continued in India and Australia and around
the Black Mountain, Flin Flon, Lisheen and Skorpion operations.
Anglo Platinum"s exploration effort in South Africa was directly linked to its
commitment to increase production. Internationally, Anglo Platinum"s partners
have progressed several programmes in Canada and Russia.
AngloGold"s exploration was focused around operations in Argentina, Australia,
Brazil, Tanzania, Mali, Namibia, South Africa and the USA. In addition,
exploration was pursued in highly prospective areas in Canada and Peru.
Cash flow
Group EBITDA was maintained at $4,785 million compared with $4,792 million in
2002. Net cash inflow from operations was $3,184 million compared with $3,618
million in 2002. Depreciation and amortisation, which increased by $362 million,
are analysed below.
Analysis of depreciation by business segment (subsidiaries)
US$ million 2003 2002
Platinum 206 107
Gold 180 182
Coal 124 104
Base Metals 220 124
Industrial Minerals 176 142
Paper and Packaging 285 228
Ferrous Metals & Industries 105 63
Other 14 12
1,310 962
Analysis of goodwill amortisation by business segment (subsidiaries)
US$ million 2003 2002
Platinum 17 16
Gold 32 31
Coal 5 4
Base Metals 1 1
Industrial Minerals 53 46
Paper and Packaging 18 15
Ferrous Metals & Industries 5 4
Other 22 22
153 139
Acquisition expenditure accounted for an outflow of $1,469 million. The
principal acquisitions included an increase in the Group"s shareholding in Kumba
to 66.6%. The Group has also increased its interests in Anglo Platinum and
AngloGold.
Purchase of tangible fixed assets amounted to $3,025 million, an increase of
$886 million from 2002. The major components of expansion were in Platinum and
Paper and Packaging.
Analysis of capital expenditure by business segment (subsidiaries)
US$ million 2003 2002
Platinum 1,004 586
Gold 339 246
Coal 207 142
Base Metals 352 346
Industrial Minerals 316 363
Paper and Packaging 601 365
Ferrous Metals & Industries 195 85
Other 11 6
3,025 2,139
Balance sheet
Total shareholders" funds were $20,394 million compared with $16,261 million as
at 31 December 2002. The increase was primarily due to retained earnings and the
appreciation of the South African rand.
Net debt was $8,633 million, an increase of $3,055 million from 2002. This
increase was principally due to debt incurred to fund acquisitions during the
period. Net debt at 31 December 2003 comprised $10,759 million of debt, offset
by $2,126 million of cash and current asset investments. Net debt to total
capital as at 31 December 2003 was 26.6%, compared with 23.1% in 2002.
Exchange rates against the US dollar
Average 2003 2002
South African rand 7.55 10.48
Pound sterling 0.61 0.67
Euro 0.88 1.06
Australian dollar 1.53 1.84
Year end
South African rand 6.67 8.58
Pound sterling 0.56 0.62
Euro 0.79 0.95
Australian dollar 1.33 1.79
Commodity pricesAverage market prices for the period
2003 2002
Gold - US$/oz 363 310
Platinum - US$/oz 692 541
Palladium - US$/oz 201 336
Rhodium - US$/oz 530 838
Copper - US cents/lb 81 71
Nickel - US cents/lb 437 307
Zinc - US cents/lb 38 35
Lead - US cents/lb 23 21
European eucalyptus pulp price (CIF) 500 452
- US$/tonne
Consolidated profit and loss account for the year ended 31 December 2003
Before Exception Before Exce
al ptio
nal
exceptio
