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Anglo American Plc - Interim Results For The 6 Months To June 2004
Release Date: 05/08/2004 08:25:40 Code(s): AGL
ANGLO AMERICAN PLC - INTERIM RESULTS FOR THE 6 MONTHS TO JUNE 2004
Anglo American plc
(Incorporated in the United Kingdom)
Registration number: 3564138
Share code: AGL
ISIN: GB0004901517
(the `Company`)
Anglo American reports record interim results for 2004, up 52%
Record first half headline earnings(1) of $1.3 billion, an increase of 52% over
corresponding period in 2003
Total profit for the period up 125% to $1.7 billion
Cash generation (EBITDA) (1) up 40% at $3.4 billion
Interim dividend increased from 15 cents to 19 cents
Record Base Metals performance - headline earnings increased sevenfold to $455
million
Ferrous Metals, Coal and Platinum benefited from higher prices; demand for rough
diamonds remained firm. Steady performances from Industrial Minerals and Paper
and Packaging
South African earnings negatively impacted by strong rand
Cost and efficiency improvements resulted in total cost savings of $248 million
Merger of AngloGold and Ashanti completed in April
Ongoing development of $6 billion project pipeline
Non-core disposals of $1.3 billion, including 20% stake in Gold Fields for
$1.18 billion
Global economic conditions remain positive for commodities
(1) See definitions beneath the financial highlights table.
HIGHLIGHTS FOR THE SIX MONTHS TO 30 JUNE 2004 6 months 6 months Change
ended ended
30.06.04 30.06.03
US$ million except per share amounts
Turnover including share of joint ventures 15,235 12,076 26%
and associates
Total operating profit for the period 2,248 1,534 47%
Total operating profit before operating 2,248 1,546 45%
exceptional items
Profit for the period 1,709 760 125%
Profit for the period before exceptional 1,200 762 57%
items
Headline earnings for the period (1) 1,304 856 52%
Net operating assets (2) 34,486 24,012 44%
EBITDA (3) 3,433 2,444 40%
Net cash inflow from operating activities 2,075 1,286 61%
Capital expenditure 1,397 1,172 19%
Earnings per share (US$):
Profit for the period 1.20 0.54 122%
Profit for the period before exceptional 0.84 0.54 56%
items
Headline earnings for the period 0.91 0.61 49%
Dividend for the period (US cents per share) 19 15 27%
(1)Headline earnings is defined as profit for the period (after tax and
minority interests), adjusted to remove the impact of exceptional items
and add back goodwill amortisation. In both cases, the adjustment includes
the impact of associated tax and minority interest. See note 5 to the
financial information for basis of calculation of headline earnings.
(2) See note 2 to the financial information for definition of net
operating assets.
(3)EBITDA is operating profit before exceptional items, depreciation and
amortisation. EBITDA is reconciled to net cash inflow from operating
activities before the cash flow statement.
Tony Trahar, Chief Executive, said:
`Anglo American achieved record first half headline earnings of $1.3 billion, up
52% on the corresponding period in 2003. Base Metals and Ferrous Metals reported
record results due to higher metals prices and production volumes and also the
impact of recent acquisitions, in particular Minera Sur Andes and Kumba. Higher
profits were also recorded by Coal and Platinum. The demand for rough diamonds
remained firm. Our South African operations continued to operate in a
challenging environment as the South African rand strengthened further against
the US dollar, rising 17% over the prior period - this impacted our gold and
platinum operations in particular. Anglo American`s cash generation (EBITDA)
increased 40% to $3.4 billion, an increase of $1 billion over the prior period.
We continued to make significant progress on cost savings and efficiency
improvements across the Group. For the first six months, we achieved $248
million in total cost savings and will clearly exceed our target of $250 million
for 2004.
The Group`s major expansions in South America resulted in over 40% of headline
earnings coming from the Americas. South Africa accounted for 29% of headline
earnings with Europe contributing 15%.
Significant developments were made in our $6 billion project pipeline, one of
the largest organic growth programmes in the resources industry. Construction of
the $654 million Collahuasi Rosario Project in Chile was completed some five
weeks ahead of schedule and under budget and the project is coming on stream in
a favourable copper price environment. In the UK, Anglo Industrial Minerals` new
cement plant at Buxton commenced operation in March and is ramping up to full
capacity. The Skorpion zinc mine in Namibia continued to ramp up production and
is on target to achieve full production in December 2004.
The merger of AngloGold and Ashanti Goldfields of Ghana, which was completed in
April this year, has created the world`s second largest gold mining company in
terms of production. Good progress is being made with the integration of the two
companies and an organic growth pipeline of seven approved projects should add
some 14 million ounces to the company`s production profile.
We believe that current global economic conditions will continue to remain
positive for commodities. The GDP growth trends for both the US and Japan and
the ongoing industrialisation of China, while perhaps not at the recent
remarkable rate of growth, as well as Russia and India, are likely to increase
demand for the Group`s key commodities. European economic growth, however,
remains of concern, with likely adverse impact on our paper and packaging
operations as well as some of our industrial minerals assets. The ever higher
level of the South African rand over the past two months will - if maintained -
adversely affect the performance of our South African assets in the absence of
any material commodity price increases. Overall, however, our balanced
geographic and asset base contributes a unique mix which, with the ongoing focus
on cost efficiencies, strong cash generation and a $6 billion project pipeline,
should continue to underpin our performance in the years ahead.`
First half results - overview
The past six months fell into two distinct periods. The first quarter saw a
number of metal prices reaching record or near-record highs as China`s growing
need for commodities impacted international markets. The economic turnaround in
the US and Japan added to this positive momentum, which resulted in record
levels of speculative activity in a number of metals. The second quarter on the
other hand was dominated by fears of rising US interest rates and a potential
downturn in the Chinese economy as their government announced the introduction
of measures designed to reduce inflationary pressures.
Financials
Anglo American`s overall performance for the first half reflected these market
conditions. The Group delivered record first half headline earnings of $1.3
billion, an increase of 52% on last year`s interim performance. Our Base Metals
business posted record headline earnings, a sevenfold increase to $455 million,
and was the largest contributor to the Group as higher copper, nickel and zinc
prices and the contribution by the Minera Sur Andes operation enhanced
performance. Ferrous Metals also benefited from stronger prices and the
contribution from Kumba, while thermal and coking coal prices reached record
levels and the platinum price remained strong.
However, Anglo American`s South African operations were adversely affected by
the rand/dollar exchange rate which averaged R6.67, a 17% strengthening over the
prior period. While the Group`s mining businesses in general turned in strong
performances, its Industrial Minerals and Paper and Packaging businesses endured
tougher market conditions as competitive UK aggregates markets and weak European
pricing for uncoated woodfree paper products affected performance. Demand for
rough diamonds remained firm.
Total profit for the period increased 125% to $1.7 billion.
Cost Savings
The ongoing focus on reducing costs and driving efficiencies across all business
units resulted in total cost savings of $248 million for the first half of 2004.
Clearly the Group`s targeted full year cost savings of $250 million will be
exceeded.
Strategy
Anglo American`s strategy is to achieve real growth and added value for its
shareholders across the cycle through acquisitions, brownfields and greenfields
projects and by continuously improving the operating efficiency of existing
assets. The Group aims to achieve world class performance in all areas of its
business, to provide a safe and healthy environment for employees and to
demonstrate commitment to sustainable development.
Disposals
During the period a number of significant non-core disposals were made amounting
to $1.3 billion. In January, Anglo American disposed of its remaining stake in
FirstRand Limited for $47 million. In March, the Group announced the sale of its
20% stake in Gold Fields Limited to Norilsk Nickel for $1.18 billion, realising
a gain of $464 million. Anglo American has also agreed, subject to certain
conditions, to sell its 18% stake in Western Areas Limited to a black
empowerment consortium, realising value for these shares whilst introducing a
new broad-based black empowerment consortium to the South African mining
industry.
Organic Growth
The first half was an active one in terms of the ongoing development of the
Group`s $6 billion project pipeline.
The commissioning of the $654 million Collahuasi Rosario Project commenced in
late April, some five weeks ahead of schedule and under budget. The project,
first announced in October 2002, will enable Collahuasi to maintain production
of copper in concentrate at a long-term average rate of 400,000 tonnes per annum
and is coming on stream in a favourable copper price environment. In Namibia,
the Skorpion zinc mine remains on target to achieve full production by the end
of 2004.
In May, Anglo American announced that it had entered into a Memorandum of
Understanding with BHP Billiton to investigate a proposed expansion of adjacent
coal resources in the Western Complex, South Africa. Should the proposed
expansion prove viable, the establishment of the Western Complex would be an
important development for the South African coal industry.
In the UK, Anglo Industrial Minerals` new cement plant at Buxton commenced
operation in March and is ramping up to full capacity. The total project cost
came in below budget. In China, development is proceeding at Yang Quarry, 140 km
from Shanghai and the closest reserve to China`s commercial capital of top-
quality asphalt aggregates. The quarry expects to be fully operational in the
final quarter of the year.
The $604 million paper and pulp expansion and upgrade programmes at Ruzomberok
in Slovakia and Mondi`s mills in South Africa are on track and within budget.
Anglo Platinum`s $2 billion expansion programme is proceeding in accordance with
the revised build-up profile announced in December 2003, to produce
approximately 2.9 million ounces of refined platinum in 2006. The review of
costs and work processes is making good progress and cost savings will start
being realised in the second half of the year. The viability of expansion
projects will continue to be reviewed on a regular basis, particularly with
regard to the strength of the South African rand.
After a lengthy permitting process, the Group`s associate De Beers has received
approval of its environmental impact assessment for the proposed Snap Lake
diamond mine in Canada`s Northwest Territories. Subject to final approval being
granted by the De Beers board in November 2004, first production is envisaged in
2007.
On iron ore, it is anticipated that final Kumba board approval to proceed with
the Hope Downs project in Western Australia will be sought before the end of the
year, once outstanding contractual issues have been resolved. Anglo American is
also working with Kumba to investigate the 10 million tonnes per annum expansion
of Kumba`s Sishen iron ore mine in South Africa and to facilitate meaningful and
sustainable black economic empowerment in Kumba.
Acquisitions
The merger of AngloGold and Ashanti Goldfields of Ghana was completed in April
this year, creating the world`s second largest gold mining company in terms of
production. As a result of the merger, Anglo American`s holding in AngloGold
Ashanti was diluted to 47%, which has been subsequently rebuilt to 51%. On 1
July 2004, AngloGold Ashanti announced that it had agreed to pay $32 million for
a 29.9% interest in Trans-Siberian Gold plc, which is developing three
significant gold deposits in Russia.
In terms of future acquisitions, Anglo American remains cautious about
valuations in the mining sector at this point in the cycle, although the Group
continues to examine opportunities in the areas of paper and packaging and
industrial minerals, where asset values appear more realistic.
In April, Anglo American acquired the remaining 30% minority interest in
Frantschach AG for a total consideration of Euro320 million. Frantschach is now
a wholly owned subsidiary of Anglo American. The acquisitions of Copamex
(renamed Mondimex) and Bauernfeind were completed in the first quarter of 2004
and are performing according to expectations, having bolstered Mondi`s position
in the North American and central European markets respectively.
In central Europe, the acquisition of the Bilfinger Berger building materials
business in December 2003 has brought with it a long term reserve position in
hardstone aggregates in Germany and the Czech Republic.
Finance
In July, Anglo American announced the refinancing of its existing debt
facilities with a new $2.5 billion revolving multi-currency dual tranche
facility. The new facility, which will replace Anglo American`s two existing
loan facilities, improves the terms and conditions of the existing facilities
and extends the maturity date to 2009.
In April, the credit rating agency Standard and Poor`s affirmed the Group`s A-
long-term credit rating.
Anglo American has been advised that it will be reclassified from MSCI`s
emerging market index to its UK index from 30 November this year. Anglo American
believes this to be the proper area of classification.
Safety, Health and Environment
It is encouraging to report that both lost-time injury frequency and fatal
injury frequency rates continued to improve. The former is down by 16% and the
latter 11% compared with the first half of 2003.
Anglo American`s corporate global leadership role in tackling HIV/AIDS continues
to make good progress. Voluntary counselling and testing (VCT) take-up is
increasing at Anglo American`s operations in southern Africa. VCT is a key
factor in managing the Company`s southern African operations in a sustainable
manner. In the great majority of cases, those who are HIV-positive and are
following an anti-retroviral drug treatment regimen are leading productive
lives, both at home and in the workplace.
In recognition of its pioneering role in managing the HIV/AIDS epidemic, Anglo
American received the Award for Leadership in the Global Business Coalition
HIV/AIDS Business Excellence Awards during a ceremony held in Berlin in April
presided over by German Chancellor Gerhard Schroder and World Bank President
James Wolfensohn.
Black Economic Empowerment (BEE)
Paper and Packaging`s Mondi South Africa business has now completed its
integrated newsprint transaction with BEE group, MCI Resources, which owns a 42%
equity stake in the R1.1 billion enterprise. A similar transaction for Mondi
South Africa`s integrated packaging business is being pursued.
Anglo Platinum continues to explore ways to extend broad-based empowerment at
mine level. The 50:50 Bafokeng-Rasimone Platinum Mine joint venture with the
Royal Bafokeng Nation became fully operational on 1 March 2004.
The Group continues to make good progress with its black procurement initiatives
which have resulted in excess of $2 billion of procurement to date. Regarding
new order mineral rights in South Africa, the Group is working towards
submitting applications over a number of licence areas.
Dividend
For some years the board has adopted a dividend policy of maintaining the
interim dividend at 15 cents per share. To reduce the disparity between the size
of the interim and final dividends, the board has decided to increase the
interim dividend by 27% to 19 cents per share and intends to maintain it at that
level for the foreseeable future. The significant increase in the interim
dividend should not be taken as indicative of a similar rate of increase for the
total dividend. The level of the total dividend will, as always, be recommended
on the basis of the full year results and in light of the board`s intention to
maintain a progressive dividend policy.
Outlook
Anglo American believes that current global economic conditions will continue to
remain positive for commodities. The GDP growth trends for both the US and Japan
and the ongoing industrialisation of China, while perhaps not at the recent
remarkable rate of growth, as well as Russia and India, are likely to increase
demand for the Group`s key commodities. European economic growth, however,
remains of concern, with likely adverse impact on Anglo American`s paper and
packaging operations as well as some of its industrial minerals assets. The ever
higher level of the South African rand over the past two months will - if
maintained - adversely affect the performance of the Group`s South African
assets in the absence of any material commodity price increases. Overall,
however, the Group`s balanced geographic and asset base contributes a unique mix
which, with the ongoing focus on cost efficiencies, strong cash generation and a
$6 billion project pipeline, should continue to underpin performance in the
years ahead.
For further information:
Anglo American - London
Investor Relations Media Relations
Nick von Schirnding Kate Aindow
Tel: +44 207 698 8540 Tel: +44 207 698 8619
Anglo American - Johannesburg
Investor Relations Media Relations
Anne Dunn Marion Dixon
Tel: +27 11 638 4730 Tel: +27 11 638 3001
Notes to Editors:
Anglo American plc with its subsidiaries, joint ventures and associates is a
global leader in the mining and natural resource sectors. It has significant and
focused interests in gold, platinum, diamonds, coal, base metals, ferrous metals
and industries, industrial minerals and paper and packaging as well as financial
and technical strength. The Group is geographically diverse, with operations in
Africa, Europe, South and North America, Australia and Asia.
(www.angloamerican.co.uk)
Note: Throughout this press release `$` denotes United States dollars and
`cents` refers to United States cents and headline earnings is as defined in
note 5 in the financial information. EBITDA is defined in the EBITDA
reconciliation before the cash flow in the financial information.
FINANCIAL REVIEW OF GROUP RESULTS
Headline earnings per share increased to $0.91 per share, up 49% over the first
half of 2003. Headline earnings for the half year totalled $1,304 million,
resulting from a particularly strong contribution from Base Metals and a
significant increase from Ferrous Metals and Industries. Coal, Platinum, Paper
and Packaging and Industrial Minerals also increased contributions. AngloGold
Ashanti recorded lower earnings due mainly to the impact of the stronger rand.
Headline earnings 6 months 6 months
30 June 30 June
$ million 2004 2003
Profit for the financial period 1,709 760
Operating exceptional items - 12
Exceptional finance charge - 13
Non-operating exceptional items (535) (18)
Tax on exceptionals 30 (7)
Goodwill amortisation 112 98
Related minority interests (12) (2)
Headline earnings 1,304 856
Headline earnings per share ($) 0.91 0.61
Profit for the period increased by 125% to $1,709 million compared with $760
million in the first half of 2003. This was principally due to strong
operational results and significant profits on the sale of the Group`s non-core
interests, including Gold Fields Limited.
Summary profit and loss account 6 months 6 months
30 June 30 June
$ million 2004 2003
Total operating profit before 2,248 1,546
exceptional items
Exceptional operating items - (12)
Total operating profit 2,248 1,534
Non-operating exceptional items 535 18
Profit before interest 2,783 1,552
Net interest payable (191) (179)
Profit before tax 2,592 1,373
Tax (686) (439)
Profit after tax 1,906 934
Minority interests (197) (174)
Profit for the financial period 1,709 760
Earnings per share ($) 1.20 0.54
The Group`s results are influenced by a variety of currencies owing to the
geographic diversity of the Group. The South African rand in particular
strengthened considerably against the US dollar during the period with an
average exchange rate of R6.67 compared with R8.03 in the first half of 2003.
Currency movements adversely impacted headline earnings by $216 million. This
was more than offset by the positive impact of increased prices amounting to
$866 million.
Exceptional items
Non-operating exceptional gains amounted to $535 million. These included $464
million for the profit on sale of the Group`s holding in Gold Fields Limited.
Interest
The net interest charge increased from $179 million in the first half of 2003 to
$191 million. The increase reflects the increase in net debt from $6,989 million
at 30 June 2003 to $8,730 million as at 30 June 2004.
Taxation
The effective rate of taxation before exceptional items was 32%. This was an
increase from the effective rate of 29% in the year ended 31 December 2003, due
to a number of one-off tax benefits arising in 2003 and a change in the mix of
earnings contributed by the Group`s businesses.
Balance sheet
Total shareholders` funds were $22,531 million compared with $19,772(1) million
as at 31 December 2003. The increase was primarily due to retained earnings and
the appreciation of the rand against the dollar.
Net debt was $8,730 million, an increase of $97 million from 31 December 2003.
Net debt at 30 June 2004 comprised $11,162 million of debt, offset by $2,432
million of cash and current asset investments. Net debt to total capital as at
30 June 2004 was 24.6%, compared with 27.1%(1) at 31 December 2003.
Cash flow
Net cash inflow from operations was $2,075 million compared with $1,286 million
in the first half of 2003. EBITDA was $3,433 million, up significantly from
$2,444 million in the first half of 2003. Depreciation and amortisation
increased by $280 million to $988 million.
Acquisition expenditure accounted for an outflow of $953 million. The Group has
increased its interest in Anglo Platinum to 74.9% and purchased further shares
in AngloGold Ashanti to restore its holding to 51%.
Proceeds from disposals excluding sale of other investments totalled $1,233
million, with proceeds on the sale of Gold Fields Limited accounting for $1,180
million.
Purchases of tangible fixed assets amounted to $1,397 million, an increase of
$225 million from the first half of 2003. The major components of expansion were
in Platinum and Paper and Packaging.
Dividends
An interim dividend of 19 US cents per share to be paid on 21 September 2004 has
been declared.
(1) Restated for UITF (Urgent Issues Task Force) abstract 38. See Note 1 to the
financial information.
OPERATIONS REVIEW
Base Metals
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 565 98
Copper 435 106
Nickel, Niobium, Mineral Sands 117 47
Zinc 28 (44)
Other (15) (11)
Headline earnings 455 60
EBITDA 718 235
Net operating assets 4,284 3,933
Capital expenditure 127 155
Share of Group headline earnings (%) 35% 7%
Share of Group net operating assets (%) 12% 16%
Base Metals` operating profit rose from $98 million to a record $565 million on
the back of materially higher average base metal prices, partially offset by
adverse exchange rate movements.
The copper division generated an operating profit of $435 million (2003: $106
million), of which Minera Sur Andes accounted for $222 million. Copper
production rose to 363,900 tonnes (2003: 350,000 tonnes), largely as a result of
higher production at Los Bronces. An amount of $34 million was paid to
ExxonMobil Corporation in terms of the Disputada contingent price participation
agreement.
Collahuasi`s $654 million Rosario project was commissioned in May, ahead of
schedule and under budget. Mill throughput rates are already exceeding the
110,000 tonnes per day design capacity. Following significant exploration
success the $80 million El Soldado life extension project, which will extend the
mine life from 7 years to 20 years, was approved.
Operating profits for the nickel, niobium and mineral sands division totalled
$117 million (2003: $47 million), buoyed by higher nickel, pig iron and zircon
prices. Nickel and niobium production was in line with 2003. The operations
suffered higher electricity and fuel oil costs, as well as more general cost
pressures at Loma de Niquel, which continued to face challenging conditions as a
result of exchange controls and an artificially low official exchange rate. At
Namakwa, production from the mineral separation plant recommenced in January
following the major fire in October 2003. The recovery plan was largely
completed by 30 June 2004.
During the half year, the Group`s 25% interest in Nkomati was sold for a
consideration of $37 million and the $67 million Codemin expansion project,
which will increase annual nickel production by some 4,000 tonnes, was approved.
Zinc division`s operating profit increased to $28 million (2003: loss of $44
million), with favourable metal prices outweighing the adverse impact of
exchange-rate movements and other non-controllable cost increases. Total zinc
production for the first half was 203,200 tonnes (2003: 159,500 tonnes), mainly
on account of the ramp-up of output from Skorpion, which averaged 85% of design
capacity in the second quarter and remains on target to achieve full production
by the end of 2004.
The $276 million 777 project at Hudson Bay, completed ahead of time and under
budget, is operating at design capacity.
The outlook for base metal prices remains positive, with deficits forecast in
copper, nickel and zinc, but price volatility is expected to remain high.
Paper and Packaging
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 320 357
Europe 250 260
South Africa 70 97
Headline earnings 226 205(1)
EBITDA 532 523
Net operating assets 5,887 4,374
Capital expenditure 409 233
Share of Group headline earnings (%) 17% 24%(1)
Share of Group net operating assets (%) 17% 18%
Operating profit for Paper and Packaging fell by 10% from $357 million to $320
million.
Mondi Europe`s operating profit of $250 million was down 4%. The single most
significant factor contributing to this decrease has been the 9% price erosion
in office papers since July 2003. The adverse market factors were partially
compensated by incremental volumes, sustained focus on profit improvement
initiatives and the benefits accruing from acquisitions.
The European packaging businesses achieved results in line with the first half
of 2003. After a weak start, demand has improved, supporting paper price
increases in both sack and corrugated paper grades. The recent improvement in
the US market has relieved pressure from lower priced imported paper into
Europe. In the converting section, slow economic growth has impacted volume
expansion and placed further pressure on margins. The acquisition of Bauernfeind
has strengthened Mondi`s European market position and further balanced the
integrated packaging paper supply. Progress is being made in enhancing the
group`s North American market position from the newly acquired Mondimex`s
Mexican base. Both Bauernfeind and Mondimex are performing ahead of expectation.
Performance slipped in the business papers sector due to ongoing price pressure.
European demand has grown modestly, with dollar-denominated imported tonnage and
a decline in export volumes eroding prices. Pulp prices have strengthened, with
market prices up $45 per tonne creating further margin squeeze. The start-up
curve on the Neusiedler Ruzomberok PM18 rebuild has been promising and the
rebuild of the Ruzomberok pulp mill is progressing well.
Mondi South Africa achieved an operating profit of $70 million, a satisfactory
result under difficult trading conditions. The strong rand exchange rate reduced
export margins and also placed pressure on domestic pricing. Commercial shuts at
packaging mills and the commissioning of the first phase of the Richards Bay 720
project in March reduced production, but higher efficiencies at other mills and
cost reductions helped offset some of the negative impact.
A restructuring of the South African operations, which is near completion, will
result in the integration of the European and South African uncoated woodfree
businesses. This should realise significant operational and marketing benefits.
Following the acquisition of the remaining 30% minority interest in Frantschach,
all of the non-South African packaging operations will be consolidated into one
structure.
Although pricing sentiment in Europe is improving, if dollar weakness persists a
difficult second half is anticipated.
(1) Headline earnings for Paper and Packaging have been adjusted for the 6
months ended 30 June 2003 as net interest for wholly owned operations in Paper
and Packaging is now accounted for centrally within Corporate Activities. Net
interest for wholly owned operations in Paper and Packaging was $52 million and
$27 million for the six months ended 30 June 2004 and 30 June 2003 respectively.
Headline earnings on the former basis would therefore have been $174 million and
$178 million for the six months ended 30 June 2004 and 30 June 2003
respectively. See note 5 to the financial information.
Diamonds
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 350 378
Headline earnings 217 248
EBITDA 395 411
Group`s share of De Beers` net assets 2,704 2,513
(1)
Share of Group headline earnings (%) 17% 29%
Attributable operating profit from De Beers was $350 million (2003: $378
million). Diamond stocks reduced by nearly $400 million and operating cash flow
generated was $870 million. This enabled
De Beers to further reduce net interest-bearing debt from $1.76 billion at 31
December 2003 to $1.17 billion at 30 June 2004 and to reduce net gearing from
29% to 21%.
There was consistent demand for rough diamonds throughout the period and sales
by The Diamond Trading Company (DTC), the marketing arm of De Beers, totalled
$2.98 billion, 2.2% higher than the equivalent period in 2003. The DTC raised
its rough diamond prices on two occasions during the six months. The cumulative
effect of those increases, and those previously announced in 2003, meant that
the DTC`s average rough prices were 14% higher than for the first half of 2003.
De Beers` older and more marginal mines in South Africa continue to struggle in
the current environment, and every effort is being made to seek further
efficiencies and cost reductions.
Debswana Diamond Company has lodged an application for the renewal of its
Jwaneng mining licence for a further period of 25 years. The current Jwaneng
licence expired on 31 July 2004 but the lease will be extended until agreement
is reached between the Government of Botswana and De Beers.
De Beers announced in July that it had reached a settlement with the United
States Department of Justice for the resolution of a long-standing case against
De Beers in respect of industrial diamonds. In terms of the settlement, De Beers
agreed to pay a fine of $10 million.
Global diamond jewellery sales in the first half of 2004 are anticipated to be
7% to 8% higher than for the same period last year, which was affected by the
war in Iraq and the SARS virus. The trade is optimistic that the strong consumer
demand will continue through the second half and expectations are that retail
sales for the year as a whole will be comfortably ahead of 2003.
(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 subsidiaries only.
Ferrous Metals and Industries
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Ferrous Metals and Industries operating 387 104
profit
Kumba 96 6
Highveld Steel 67 4
Scaw Metals 45 35
Samancor Group 89 27
Tongaat-Hulett 28 23
Boart Longyear 26 9
Terra 41 (3)
Other (5) 3
Headline earnings 207 41
EBITDA 563 204
Net operating assets 4,971 2,038
Capital expenditure 144 59
Share of Group headline earnings (%) 16% 5%
Share of Group net operating assets (%) 14% 8%
Ferrous Metals and Industries` operating profit increased by 272% to $387
million. This was largely attributable to improved prices for iron ore, steel,
manganese, ferrochrome and vanadium. Kumba`s contribution was $96 million
(attributable 66.6%) compared with $6 million in 2003 (attributable 20.1%).
Kumba`s performance reflected increased commodity prices, higher sales volumes,
solid operational performances and margin improvement initiatives, in part
offset by the strong rand. Its iron ore operations benefited from an average 19%
annual rise in dollar-denominated prices effective 1 April 2004.
Scaw Metals` operating profit was $45 million (2003: $35 million). Higher
volumes and increased selling prices flowing from relatively strong domestic and
export demand in certain product lines were offset in part by input cost
increases in steel making raw materials, particularly scrap.
The attributable share of Samancor`s operating profit amounted to $89 million
(2003: $27 million). Samancor`s manganese operations benefited from improved
market conditions, resulting in stronger ore and alloy prices as well as higher
sales volumes. The chrome operations likewise benefited from higher volumes and
prices.
Highveld Steel and Vanadium recorded a strong interim operating profit of $67
million (2003: $4 million). This was largely a result of higher prices and
volumes, as well as an improved operating performance.
Boart Longyear`s operating profit was $26 million (2003: $9 million). The
Product and Contracting divisions` profits in the Americas and Asia Pacific
regions more than doubled, due to greatly increased drilling activity, while
those in sub-Saharan Africa were boosted by higher sales of rock drills and
capital equipment. The European drilling products operations performed poorly
and are the subject of continued management focus.
Terra turned around an operating loss of $3 million in the first half of 2003 to
generate an attributable operating profit of $41 million. This performance
reflected higher nitrogen selling prices, lower natural gas costs and an
attributable $6 million flowing from a successful insurance claim arising from
prior litigation.
Tongaat-Hulett`s operating profit was $28 million (2003: $23 million). The sugar
division`s profitability was negatively influenced by lower world sugar prices
and reduced South African production, while the aluminium division performed
satisfactorily, with strong growth recorded in its rolled products division.
Coal
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 196 172
South Africa 89 69
Australia 26 74
South America 81 29
Headline earnings 147 107
EBITDA 286 256
Net operating assets 2,103 1,904
Capital expenditure 64 74
Share of Group headline earnings (%) 11% 13%
Share of Group net operating assets (%) 6% 8%
Anglo Coal`s operating profit was $196 million, 14% higher than for the first
half of 2003, mainly as a result of higher export prices.
Thermal coal price increases have been driven mainly by constraints on Chinese
thermal coal availability for export and continued inefficiencies in the
logistics chain elsewhere. Metallurgical coal prices reflect general steel
sector demand and particularly Chinese demand for raw materials.
Operating profit for South African sourced coal increased by 29% to $89 million.
Sales volumes rose by 4% to 26 million tonnes, mainly on account of demand from
Eskom, which continues to purchase all coal that can be supplied by its tied
collieries. The increase in earnings was predominantly attributable to
significantly higher export prices, partially offset by underperformance in
railing coal to port, and the continued strength of the South African currency.
In Australia, operating profit fell by 65% from $74 million to $26 million. This
was mainly due to there being no production at Moranbah North mine from early
January owing to recovery activities after a fall of ground. An insurance claim
has been made in respect of the incident. Included in operating profit is an
amount of
$33 million for insurance proceeds attributable to the first half of the year.
Longwall production at Moranbah North recommenced in July. Australian
attributable saleable coal production was 9% lower at 12 million tonnes. In
addition, the Australian dollar appreciated by 17% against the US dollar over
the corresponding period, although this was partly offset by favourable exchange
rate hedges and careful cost control.
In Colombia, attributable sales tonnes increased by 14% to 4.1 million tonnes,
while operating cost reductions continue to be achieved. In Venezuela,
attributable sales tonnes at Carbones del Guasare increased by 15% to 0.8
million tonnes. Average export prices in both Colombia and Venezuela were
significantly higher than for the comparative period in 2003.
In China, Anglo Coal continues to make progress in achieving its future business
goals and has started on a drilling programme as part of the Xiwan pre-
feasibility study.
Performance in the second six months is expected to reflect both improved
production and the impact of continued high coal prices.
Platinum
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 320 204
Headline earnings 139 107
EBITDA 479 303
Net operating assets 6,585 4,803
Capital expenditure 292 394
Share of Group headline earnings (%) 11% 13%
Share of Group net operating assets (%) 19% 20%
Anglo Platinum`s operating profit for the first half of 2004 rose by 57% to $320
million on the back of increased sales volumes and strong dollar prices realised
on metals sold.
The average realised dollar basket price of metals sold, at $1,183 per platinum
ounce, was 31.6% greater than in the first six months of 2003, with improved
platinum and nickel prices making the largest contribution. The average realised
price for platinum of $844 per ounce was $195 higher, while nickel was $5.83 per
pound compared with $3.62.
Refined platinum production rose by 26.6% to 1,158,900 ounces as a result of the
normalisation of metal flows through the process division and additional
production from new operations, which increased the volume of platinum mined and
purchased by 91,600 ounces. Equivalent refined platinum production, which
excludes the effect of pipeline movements, increased by 7.8%.
Cash operating costs per equivalent refined ounce of platinum rose to $718 due
to an increase in rand unit costs of 7.4% and the strength of the rand, which
raised costs in dollar terms. Anglo Platinum continues to target a rand unit
cash cost increase in line with South African inflation for 2004.
In May, Anglo Platinum successfully concluded a rights offer of convertible
perpetual cumulative preference shares, which raised $599 million(1). The
proceeds were used to reduce short-term borrowings. Net debt has decreased from
$1,038 million at the end of 2003 to $323 million. Capital expenditure for the
first half amounted to $292 million (2003: $394 million).
Operations at ACP Plant and Polokwane Smelter, both of which were commissioned
last year, were stable and in line with planned production build-ups. The
Western Limb Tailings Retreatment Plant was commissioned at the end of 2003 and
achieved a rapid build-up of tonnage.
Production performance was in line with expectations and refined platinum output
is on track to meet the full year target of 2.45 million ounces. Anglo Platinum
remains confident of the robustness of current and future demand for platinum
and its expansion programme is proceeding in accordance with the revised build-
up profile announced in December 2003. New investments are however reviewed on a
regular basis to assess their viability at varying prices and exchange rates.
The continuing strength of the rand against the dollar is clearly impacting the
ability of new projects to meet the company`s required hurdle rates. As a
result, further delays in Anglo Platinum`s extensive expansion programme may
become unavoidable.
(1) Anglo American subscribed for the rights offer investing $459 million.
Industrial Minerals
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 145 136
Tarmac 126 126
Copebras 19 10
Headline earnings 114 113
EBITDA 281 250
Net operating assets 4,440 3,978
Capital expenditure 127 136
Share of Group headline earnings (%) 9% 13%
Share of Group net operating assets (%) 13% 17%
Industrial Minerals` operating profit was $145 million, 7% higher than for the
first six months of 2003. Tarmac group`s operating profit was flat, largely
owing to challenging market conditions in the UK, offset by the strength of
European currencies against the dollar and the impact of acquisitions made in
the second half of 2003.
In the UK, weaker demand led to lower sales volumes in most businesses and
operating profit was 3% down. In competitive market conditions price
improvements were modest, but the benefits of Tarmac`s ongoing business
improvement and cost reduction programme helped to offset the lower volumes. The
results were also held back by the performance of Concrete Products owing to a
restructuring charge and costs associated with the introduction of a new IT
platform. In March, the new cement plant at Buxton commenced operation, having
been completed at a cost of GBP110 million, GBP5 million below budget. The plant
is performing in line with expectations.
Tarmac`s operating profit outside the UK improved by 20%. Underlying market
conditions in the Czech Republic and Poland have strengthened following these
countries` recent accession to the EU. Owing to winter conditions, operations
throughout Central Europe typically suffer poor results during the first six
months but improve substantially in the second half. Tarmac France reported
improved profits despite continuing difficult market conditions. In Spain, the
business was impacted by a slowdown in activity as a result of a period of
uncertainty following the general election and adverse weather conditions.
In the Middle East, the economic boom in the UAE continued which resulted in a
substantial increase in operating profit. Similarly, Tarmac`s operations in
Greater China reported improved results driven by the strong economic growth in
that region.
Copebras benefited from buoyant local market conditions and increased
international fertiliser prices, which, together with increased production from
the new Goias plant, allowed it to double its operating profit to $19 million.
The new plant has successfully positioned Copebras to participate further in the
expected continued growth of the fertiliser market in Brazil.
Gold
$ million 6 months 6 months
ended ended
30.06.04 30.06.03
Total operating profit 133 180
Headline earnings 66 82
EBITDA 317 323
Net operating assets 5,934 2,675
Capital expenditure 227 117
Share of Group headline earnings (%) 5% 10%
Share of Group net operating assets (%) 17% 11%
The 17% strengthening of the rand against the dollar was the main factor in
first-half operating profit decreasing to $133 million compared with $180
million in the prior period. Gold production was some 4% lower.
The second three months of 2004 saw the first material correction in the three-
year rise in the spot price of gold. Until then, the dollar spot price of gold
had risen every quarter since the beginning of 2001 (except for a slight
retracing in the second quarter of 2003). During the second quarter, the spot
price fell around $59 per ounce, from an opening high of $430 per ounce in early
April to $371 per ounce in mid-May, closing the period at $393 per ounce.
The merger of AngloGold with Ashanti Goldfields was completed on 26 April 2004.
Production from the Ashanti assets in respect of May and June 2004 has been
incorporated into the enlarged company`s results for the half-year. Although
output from Ashanti`s operations continues to suffer from the effects of
protracted under-capitalisation, good progress is being made with the
integration of the two companies. Measures to optimise production over the life
of the assets are currently being introduced and their impact should begin to
become apparent in the next four to six quarters.
The newly combined company has an organic growth pipeline of seven approved
projects, which should add some 14 million ounces to the company`s production
profile. In July this year, AngloGold Ashanti announced the acquisition of a
29.9% stake in Trans-Siberian Gold for $32 million. This is a modest but
important step in the company`s new-frontier growth strategy.
Consolidated profit and loss account for the six months ended 30 June 2004
Before Excep-
excep- tional
tional items
items (note 3)
6 months 6 months 6 months 6 months Year
ended ended ended ended ended
30.06.04 30.06.04 30.06.04 30.06.03 31.12.03
US$ million Note
Group turnover 2
including share of
joint ventures and
associates 15,235 - 15,235 12,076 24,909
Less: Share of
joint ventures`
turnover (496) - (496) (504) (1,060)
Share of
associates`
turnover (2,953) - (2,953) (2,669) (5,212)
Group turnover -
subsidiaries 11,786 - 11,786 8,903 18,637
Operating costs (10,279) - (10,279) (7,979) (17,026)
Group operating
profit -
subsidiaries 1,507 - 1,507 924 1,611
Share of operating
profit of joint
ventures 167 - 167 118 247
Share of operating
profit of
associates 574 - 574 492 748
Total operating
profit 2 2,248 - 2,248 1,534 2,606
Profit on disposal
of fixed assets
3 - 535 535 18 386
Profit on ordinary
activities before
interest
