| Wed 23 Feb 2005, 11:20 | | Final Result |
|
Anglo American plc - Anglo American reports record headline earnings of
$2.7 billion, up 59%
Anglo American plc
(Incorporated in the United Kingdom)
Registration number: 3564138
Share code: AGL
ISIN: GB0004901517
(the `Company`)
Anglo American reports record headline earnings of $2.7 billion,
up 59%
Record results: headline earnings(1) up 59% at $2,689 million; headline
earnings per share up 57% at $1.88
Total profit for the year up 83% at $2,913 million
Cash generation: EBITDA (2) up by $2.3 billion at $7.1 billion
Record Base and Ferrous Metals performances
$1.5 billion of projects successfully commissioned: $4.7 billion
project pipeline on track
Ongoing optimisation of asset base: $2.1 billion of disposals,
including Hudson Bay and stakes in Gold Fields and Terra. Minera Sur
Andes and Kumba acquisitions performing well
Cost savings and efficiencies up 65% at $554 million
Final dividend increased by 31% to 51 cents. Total dividend up 30% at
70 cents
HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER Year Year Change
2004 ended ended %
31.12.0 31.12.0
4 3
US$ million except per share amounts
Turnover including share of joint 31,795 24,909 27.6
ventures and associates
Total operating profit before 4,572 2,892 58.1
operating exceptional items
Profit for the year 2,913 1,592 83.0
Headline earnings for the year (1) 2,689 1,694 58.7
Net operating assets (3) 37,601 29,709 26.6
EBITDA (2) 7,110 4,785 48.6
Net cash inflow from operating 4,773 3,184 49.9
activities
Capital expenditure 3,129 3,025 3.4
Basic earnings per share (US$):
Profit for the year 2.03 1.13 79.6
Headline earnings for the year 1.88 1.20 56.7
Dividend for the year (US cents per 70.0 54.0 29.6
share)
See note 7 for basis of calculation of headline earnings.
EBITDA is operating profit before exceptional items plus
depreciation and amortisation of subsidiaries and share of EBITDA
of joint ventures and associates. EBITDA is reconciled to net
cash inflow from operating activities above the cash flow
statement.
See note 2 for definition of net operating assets.
Tony Trahar, Chief Executive, said:
`The record results achieved by the Group in 2004 reflect the
transformation of our asset base into a focused global resources group
over the last five years. During that period, we have completed over
$15 billion of acquisitions and $9 billion of disposals, creating a
balanced portfolio of high quality natural resource assets and
positioning the Group to benefit from growing demand for our products.
Our strong cash generation has provided the flexibility to continue
investing in our current businesses through our $4.7 billion project
pipeline and $8 billion of potential projects, while seeking further
growth opportunities through acquisition. We remain intensely focused
on improving the operating efficiency of our assets and on leveraging
procurement spend and innovation initiatives across our business units.
Our ongoing programme has already realised $1.2 billion in efficiency
and cost improvement initiatives across the Group since 2002, $554
million of which were achieved in 2004.
The Group achieved record headline earnings of $2.7 billion for 2004,
an increase of 59% over 2003. Global growth during 2004 was the
highest for several decades, due both to the sustained recovery in the
US and continued robust economic growth in Asia, in particular the
ongoing industrialisation of China, which fed through into strong
demand for many of our commodities. Copper, nickel, zinc, coal and iron
ore markets all benefited materially as a result and a number of these
commodities reached their highest price levels for many years.
Of particular note was the strong performance by Base Metals, which
recorded headline earnings of over $1 billion on the back of record
production of copper, nickel, zinc and mineral sands products and
significantly higher base metal prices. The Minera Sur Andes (formerly
Disputada) acquisition performed particularly well, earning an EBITDA
return of 48% on this recent investment. With global steel production
surpassing 1 billion tonnes for the first time, headline earnings from
Ferrous Metals and Industries also reached record levels, increasing
more than fourfold. Coal and Platinum achieved increased profit
contributions compared to the prior year, benefiting from stronger
prices for their products. However, the continued strength of the South
African rand, which rose 15% against the US dollar, remained a
challenge for our South African operations, impacting our gold and
platinum businesses in particular. Cash generation increased, with
EBITDA rising by 49% to $7.1 billion, on the back of the Group`s strong
operating performance.
Reflecting the significant increase in earnings, the final dividend has
been increased by 31% to 51 cents per share, giving a total dividend of
70 cents per share, up 30%.
We continue to make good progress on our project pipeline, one of the
largest in the resources sector. During 2004, the Group successfully
commissioned several major new projects, including the Collahuasi
Rosario project in Chile, the Skorpion zinc mine in Namibia and the
Buxton cement plant in the UK. The platinum expansion programme
continues with production scheduled to increase from the current 2.45
million ounces per annum to 2.6 million ounces per annum in 2005. Mondi
has brought on stream an additional 105,000 tonnes capacity of pulp and
110,000 tonnes of paper at its Ruzomberok mill, completing its $233
million paper and pulp expansion in Slovakia.
The outlook for the year ahead is very dependent on growth prospects
for both OECD countries and China. While the leading indicators for
the OECD currently point to some slowing of industrial output, China
continues to grow strongly and will remain a vital market for many of
our commodities. On the supply side, global output is generally set to
increase and much will depend on the industry maintaining capital
discipline in the face of higher commodity prices. A key challenge for
the Group will be to continue improving operating efficiencies and cost
control against a background of volatile currencies and in particular a
weak US dollar. In the meantime, Anglo American`s geographic and
commodity diversity, its significant project pipeline, its disciplined
acquisition process and strong cash generation will continue to
underpin performance.
REVIEW OF 2004
Headline earnings for the year reached record levels at $2,689 million
compared with $1,694 million in 2003. Profit for the year increased by
83% to $2,913 million compared with $1,592 million in the prior year.
The increased profit in 2004 is principally due to strong operational
results, significant profits on the sale of the Group`s non-core assets
including its holding in Gold Fields Limited and a reduction in net
exceptional impairment charges. These more than compensated for an
increased net interest charge and increase in effective tax rate.
Base Metals achieved record headline earnings of $1,042 million (39% of
Anglo American`s total headline earnings), an increase of over 400%
compared with 2003, on the back of record production of copper, nickel,
zinc and mineral sands products and significantly higher base metals
prices.
Ferrous Metals and Industries reported record headline earnings of $480
million, a rise of 349% over 2003 (18% of Anglo American`s total). This
performance was due to improved prices for iron ore, manganese,
ferrochrome, steel and vanadium, a full contribution from Kumba,
together with increased volumes and cost savings.
Diamonds recorded headline earnings of $381 million (14% of Anglo
American`s total) compared to $386 million in 2003. Jewellery sales
remained firm during 2004, with strong growth in Asia-Pacific and
India, in particular. Demand for rough diamonds increased and DTC sales
were 3% higher than in 2003.
Paper and Packaging headline earnings fell by 10% to $381 million (14%
of Anglo American`s total), reflecting a significantly tougher trading
environment, particularly in the business paper sector, despite the
positive impact of incremental volumes and cost savings.
Coal increased headline earnings by 51% to $351 million (13% of Anglo
American`s total) as strong coal demand during the year led to
significantly higher export coal prices. Sales tonnage also increased
by 3%.
Industrial Minerals contributed $267 million to headline earnings (10%
of Anglo American`s total), $3 million lower than the prior year.
Tarmac faced challenging market conditions in the UK, with lower
asphalt volumes and higher bitumen and fuel costs. However, Copebras in
Brazil recorded a significantly improved performance due to buoyant
local market conditions, increased production and higher fertiliser
prices.
Platinum recorded a 17% increase in headline earnings to $239 million
(9% of Anglo American`s total) due primarily to improved prices and
greater sales volumes, offset by the strength of the South African
rand, which raised costs in dollar terms.
Gold recorded a 5% decrease in headline earnings to $158 million (6% of
Anglo American`s total) mainly due to stronger operating currencies, in
particular the South African rand, and lower grades. As a result of the
merger to form AngloGold Ashanti, gold production increased by 8% to
6.05 million ounces.
Acquisitions
One of the most significant transactions of the year was the merger of
AngloGold and Ashanti Goldfields of Ghana, which was completed in
April. The merger has resulted in a substantial increase in gold
reserves against a background of a diminishing global base. AngloGold
Ashanti, in which Anglo American holds a 51% stake, is the world`s
second largest gold mining company in terms of production. AngloGold
Ashanti continues to pursue further growth opportunities in new
frontiers such as Laos, the Philippines and Russia, in partnership with
junior mining and exploration companies.
In April, Anglo American acquired the remaining 30% minority interest
in Frantschach AG for a total consideration of $390 million.
Frantschach is now a wholly owned subsidiary of Anglo American. The
acquisitions of Copamex`s industrial packaging operations, renamed
Mondimex, for $52 million and Bauernfeind for $432 million 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 by Industrial Minerals 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.
Codemin in Brazil became a wholly-owned Base Metals subsidiary
following the purchase of the remaining 10% of the company from the
International Finance Corporation.
Although Anglo American remains cautious about valuations at this point
in the cycle, the Group continues to examine expansion and acquisition
opportunities in all its business sectors.
Disposals totalling $2.1 billion in 2004
In March, Anglo American disposed of its 20% stake in Gold Fields
Limited to Norilsk Nickel for $1.18 billion, realising a gain of $464
million on the sale. At the beginning of 2004, Anglo American completed
the disposal of its remaining stake in FirstRand Limited for $47
million.
In line with Base Metals` strategy of focusing on fewer, larger, lower
cost assets, its 25% stake in the Nkomati nickel mine in South Africa
was sold for $37 million in February and Hudson Bay Mining and Smelting
in Canada was sold for a total consideration of $257 million in
December.
Ferrous Metals and Industries continues to reshape its portfolio around
core businesses. The Group`s entire shareholding in Terra was sold for
$255 million.
In addition to the 2004 disposals, Highveld Steel and Samancor sold
half their shareholdings in Acerinox in January 2005. Anglo American`s
attributable share of the proceeds was $69 million. In February 2005,
Anglo American and BHP Billiton announced that they had reached
agreement for the sale of their respective 40% and 60% shareholdings in
Samancor Chrome for an enterprise value of $469 million.
Organic Growth
Anglo American has one of the strongest project pipelines in the mining
and natural resource industry, with $4.7 billion of approved projects
and more than $8 billion of unapproved projects, spread across all its
business units and geographies.
Completed projects during 2004
The Collahuasi Rosario transition project in Chile was successfully
completed five weeks ahead of schedule and under budget at a capital
cost of $627 million. Design capacity has been exceeded and the project
will enable Collahuasi to maintain production of copper in concentrate
at a long term average rate of 400,000 tonnes per annum.
The $454 million Skorpion mine in Namibia entered commercial production
in May 2004 within budget, achieving 95% of design capacity by year
end.
Anglo Industrial Minerals` new cement plant at Buxton in the UK
commenced operation in March having been completed at a cost of GBP110
million, GBP5 million below budget, and the plant is performing to
expectations. In China, the Yang Quarry, a new quarry supplying the
Shanghai market, commenced production at the end of the year.
Production will be ramped up during 2005.
In Coal, the Kleinkopje and Greenside expansion projects in South
Africa and the Dartbook Kayuga expansion in Australia were completed.
Mondi has brought on stream an additional 105,000 tonnes capacity of
pulp and 110,000 tonnes of paper at its Ruzomberok mill in Slovakia
completing its $233 million paper and pulp expansion. At Richards Bay
in South Africa, the final commissioning of Mondi`s $235 million pulp
mill modernisation and expansion project is progressing well.
Current projects
In December, Anglo American and Mitsui announced the approval of the
$653 million Dawson Complex, which will include the recapitalisation of
the existing coal operation at Moura in central Queensland, Australia
and the establishment of two additional operations on adjacent tenures.
This will increase production of coal by 5.7 million tonnes per annum,
over Moura`s existing saleable production of 7 million tonnes per
annum. In October, Anglo American and Kumba signed Heads of Agreement
that could lead to the development of a major coking coal mine in
central Queensland. The $106 million Grasstree project remains on
schedule to start up during 2006 and will produce 3.9 million tonnes
per annum.
Earlier in the year it was announced that a Memorandum of Understanding
with BHP Billiton had been signed to investigate a proposed expansion
of adjacent coal resources in the Western Complex in South Africa. The
Isibonelo coal mine is expected to commence production in July 2005 and
reach full production capacity in 2006, supplying 5 million tonnes per
annum to Sasol.
In Colombia, the approved expansion at Cerrejon from 22 million tonnes
per annum to 28 million tonnes per annum is on schedule and should be
achieved by 2007.
During the year, approval was received for the $80 million El Soldado
pit extension project that extends mine life by more than 20 years at
that copper operation and for the $21 million Chagres de-bottlenecking
project, which will be built and commissioned during the routine 45-day
smelter maintenance shutdown in 2005. This will increase capacity from
162,000 tonnes per annum to 184,000 tonnes per annum of copper
anode/blister. The construction of a $47 million molybdenum plant with
a capacity of 6,700 tonnes per annum at Punta Patache was also approved
by Collahuasi and will enter production in 2006. Scoping studies for
significant increases in production are under way at both Collahuasi
and Los Bronces.
The $67 million Codemin 2 project in Brazil, which will increase nickel
production to in excess of 10,000 tonnes per annum, was commissioned on
time and on budget and will ramp up to full capacity during the first
quarter of 2005.
The sinking of both the main and ventilation shafts at Black Mountain
are complete and hoisting operations commenced in early 2005. The
development of the Deeps mine and the ramping up of zinc production
will continue throughout 2005. The final estimated cost of the project
is $125 million, against a budget of $110 million, as a result of the
strength of the rand.
In October, Kumba announced the $55 million expansion of its
Grootegeluk coal mine in South Africa to increase production of semi-
soft coking coal from 1.8 million tonnes per annum to 2.5 million
tonnes per annum by 2006.
Regarding Kumba`s Hope Downs iron ore project in Australia, which has
been the subject of a dispute with a local partner, Kumba is appealing
a recent arbitration decision. Subject to Kumba`s rights of appeal, the
process for determining a fair value, at which the local partner can
elect to acquire Kumba`s project interest, has commenced. Until Kumba`s
participation in the project is finally resolved, it continues to
perform its contractual obligations in respect of the project.
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 the
first half of 2005, start-up production is envisaged in 2007.
In line with Anglo Platinum`s stated policy of implementing only those
projects which meet its investment hurdle rate, and with the unlikely
prospect of higher rand prices in the short term, the rate of
implementation of the expansion programme has been adjusted. Current
plans for 2005 indicate capital expenditure of $1 billion at current
exchange rates and refined platinum production of 2.6 million ounces.
While Anglo Platinum remains flexible with regard to the rate of
expansion, the revised implementation is expected to result in refined
platinum production in 2006 of between 2.7 million and 2.8 million
ounces.
The $121 million Cuiaba deepening project in Brazil has been approved,
which will increase production at AngloGold Ashanti Brazil (formerly
Morro Velho) from 190,000 ounces per year to 250,000 ounces per year
within two years of the project`s completion.
Cost savings
All businesses across the Group continued to focus on efficiency and
cost improvement initiatives during 2004. The total cost savings
achieved amounted to $554 million, of which operating efficiencies
(comprising maintenance, administration and overheads, labour and
materials and supplies) realised $366 million, restructuring and
synergies $6 million and procurement $182 million.
South Africa: Black Economic Empowerment
During the year, several developments took place concerning the
legislative framework governing the transformation process in South
Africa`s mining industry. Most notably, the Mineral and Petroleum
Resources Development Act, which aims to make transformation effective
across a broad front - including human resources and community
development, as well as employment equity - came into effect on 1 May
2004. All South African mining operations are focused on the
implementation of this Act. During the year the South African
government confirmed that royalties in terms of the Royalty Bill will
become payable only in 2009; a second draft of the Royalty Bill is
expected to be unveiled in the future.
We have adopted a comprehensive approach to transformation in South
Africa, including the establishment of a transformation committee,
which has been integrated with all the business unit activities.
Procurement remains an important area of focus: over the last year, we
spent the equivalent of $900 million on business development and the
procurement of goods and services from black-owned businesses, up 62%
on the previous year.
Mondi South Africa concluded two significant empowerment transactions
during 2004. Firstly in June, a joint venture was formed with Shanduka
Resources (formerly MCI Resources) in its integrated newsprint business
with Mondi retaining a 58% interest, and secondly, Mondi disposed of
42% of its $370 million South African packaging businesses to Shanduka,
effective 1 January 2005. These empowerment transactions allowed for a
further 8% interest in the newsprint business and 3% interest in the
packaging business to be set aside by Mondi for broad-based
participation by Mondi South Africa employees and relevant communities.
Anglo American has submitted a number of applications to convert old-
order rights into new-order mineral rights. The Group hopes to be able
to report progress in this regard later in the year.
Exceptional items
Operating exceptional charges amounted to $92 million. These included
impairments or write-downs of $100 million to the carrying value of
Black Mountain in Base Metals and the Group`s share, $117 million, of
an impairment of Palabora in Base Metals. Impairments were partially
offset by the $154 million reversal of a previous impairment of Terra
Industries Inc.
Non-operating exceptional gains amounted to $520 million. These
included $464 million of profit from the sale of the Group`s holding in
Gold Fields Limited.
Interest
The net interest charge increased from $319 million in the prior year
to $359 million in 2004. The increase reflects higher average net debt
levels during 2004 when compared to the average during 2003.
Taxation
The effective rate of taxation before exceptional items was 30%
compared to 29% in 2003. This change was 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 $24,998 million compared with $19,772
million(1) as at 31 December 2003. The increase was primarily due to
retained earnings and the appreciation of the South African rand and
other local currencies against the dollar.
Net debt was $8,121 million, a decrease of $512 million from 2003. Net
debt at 31 December 2004 comprised $10,782 million of debt, offset by
$2,661 million of cash and current asset investments. Net debt to total
capital as at 31 December 2004 was 21.5%, compared with 27.1%(1) in
2003.
Cash flow
Net cash flow from operations was $4,773 million compared with $3,184
million in 2003. EBITDA was $7,110 million, a substantial increase of
49% from $4,785 million in 2003. Depreciation and amortisation
increased by $660 million to $2,123 million.
Acquisitions expenditure accounted for an outflow of $1,119 million
compared with $1,469 million in 2003. The Group has increased its
interests in Anglo Platinum to 74.8% and, following the merger of
AngloGold and Ashanti Goldfields, purchased further shares in AngloGold
Ashanti to restore the Group`s holding to 51%. The Group has also
acquired the remaining 30% minority interest in Frantschach AG.
(1) Restated for UITF (Urgent Issues Task Force) abstract 38
`Accounting for ESOP trusts`. See Note 1 to the financial information.
Proceeds from disposals, excluding sale of other investments, totalled
$1,863 million, with $1,180 million from the sale of Gold Fields
Limited, $246 million cash consideration from the sale of Hudson Bay
Mining and Smelting Co Ltd and $255 million from the sale of Terra
Industries Inc. Net proceeds from sale of other investments totalled
$263 million, including sale of our remaining stake in FirstRand
Limited, part disposal of our interest in Western Areas and sale of our
interest in Avgold.
Purchases of tangible fixed assets amounted to $3,129 million, an
increase of $104 million from 2003. Increased capital expenditure by
Paper and Packaging, AngloGold Ashanti and Ferrous Metals and
Industries was partially offset by a reduction in capital expenditure
by Anglo Platinum.
Dividend
The directors recommend a final dividend of 51 US cents per share to be
paid on 29 April 2005. Total dividends for the year amount to 70 US
cents per share, increasing last year`s total dividend by 30%.
Outlook
The outlook for the year ahead is very dependent on growth prospects
for both OECD countries and China. While the leading indicators for
the OECD currently point to some slowing of industrial output, China
continues to grow strongly and will remain a vital market for many of
Anglo American`s commodities. On the supply side, global output is
generally set to increase, and much will depend on the industry
maintaining capital discipline in the face of higher commodity prices.
A key challenge for the Group will be to continue improving operating
efficiencies and cost control against a background of volatile
currencies and in particular a weak US dollar. In the meantime, Anglo
American`s geographic and commodity diversity, its significant project
pipeline, its disciplined acquisition process and strong cash
generation will continue to underpin performance.
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
Charlie Gordon
Tel: +44 207 698 8933
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 is one of the world`s largest mining and natural
resource groups. With its subsidiaries, joint ventures and associates,
it is a global leader in platinum group metals, gold and diamonds, with
significant interests in coal, base and ferrous metals, industrial
minerals and paper and packaging. 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.
Webcast:
A live webcast of the results presentation starting at 10am GMT on 23
February 2005 can be accessed through the Anglo American website at
www.angloamerican.co.uk.
Pictures:
High resolution images can be downloaded by the media at
www.vismedia.com
OPERATIONS REVIEW
BASE METALS
$ million 2004 2003
Total operating profit before exceptional 1,275 286
items
Copper 1,046 269
Nickel, Niobium, Mineral Sands 224 106
Zinc 38 (62)
Head office expenses and other (33) (27)
Total operating profit after exceptional 1,038 78
items
Headline earnings 1,042 206
EBITDA 1,626 569
Net operating assets 4,062 4,087
Capital expenditure 286 352
Share of Group headline earnings (%) 39 12
Share of Group net operating assets (%) 11 14
Anglo Base generated record operating profits, before exceptional
items, of $1,275 million (2003: $286 million) following record
production of copper, nickel, zinc and mineral sands products and
significantly higher base metal prices. While on-mine cost control
remained tight, margins were adversely affected by increased prices in
areas such as energy, explosives, chemicals, freight, insurance and, in
the copper concentrate market, a significant increase in treatment
charges and refining charges. However, $47 million was realised from
efficiency improvements and cost saving initiatives, partly offsetting
the increased operating costs.
Markets
2004 witnessed a record performance on the back of a sustained rebound
in world economic growth. Strong growth in metal demand, together with
relatively constrained supply increases, resulted in metal market
deficits and lower inventories. This, together with a weakening of the
US dollar and significant speculative fund interest, propelled US
dollar base metal prices to multi-year highs.
Operating performance
The copper division`s operating profit before exceptional items was
$1,046 million (2003: $269 million) as a result of its highest ever
attributable copper production of 766,000 tonnes (2003: 708,800 tonnes)
and a higher average copper price received of 133 c/lb (2003: 81 c/lb).
Los Bronces produced a record 231,600 tonnes on the back of higher
mining rates and grades and improved metallurgical recoveries.
Attributable production from Collahuasi was a record 211,600 tonnes,
mainly due to higher tonnages treated through the concentrator
following the Rosario project commissioning.
The Rosario transition project was successfully completed five weeks
ahead of schedule at a capital cost of $627 million (budget $654
million) and its mill throughput has consistently exceeded design
capacity of 110,000 tonnes per day. The $80 million El Soldado pit
extension project, approved during the year, will extend mine life by
more than 20 years. The $21 million Chagres de-bottlenecking project,
which increases production capacity from 162,000 tonnes per annum to
184,000 tonnes per annum of anode/blister, was also approved during the
year and will be built and commissioned during 2005. The construction
of a $47 million molybdenum plant with a capacity of 6,700 tonnes per
annum at Punta Patache was approved by Collahuasi and will enter
production in 2006. Scoping studies for significant increases in
production are under way at both Collahuasi and Los Bronces.
The Minera Sur Andes operations generated an operating profit of $511
million in 2004. Current indications are that the remaining $86 million
of the contingent purchase price will be paid in May 2005.
The Group`s share of an impairment of Palabora amounted to $117
million.
The nickel, niobium and mineral sands division generated an operating
profit of $224 million (2003: $106 million) on the back of attributable
nickel production of 24,000 tonnes and an average nickel price received
of 617 c/lb (2003: 403 c/lb). Production at both Loma de Niquel and
Codemin was essentially unchanged, while niobium production rose
slightly. At Namakwa, rutile and zircon production grew by 16% and 28%
respectively as the operation recovered from the after-effects of the
mineral separation plant fire in the second half of 2003. All
operations saw significant upward pressure on costs due to currency
effects, the rising prices of key inputs such as power, fuel oil,
aluminium powder and anthracite and, in Brazil, the imposition of new
taxes.
The 25% interest in the Nkomati joint venture was sold for $37 million
and Codemin became a wholly owned subsidiary following the purchase of
the outstanding 10% of the company. The $67 million Codemin 2 project
which will increase nickel production to in excess of 10,000 tonnes per
annum, was commissioned on time and on budget and will ramp up to full
capacity during the first quarter of 2005. The Barro Alto feasibility
study will be completed in 2005.
The zinc division`s operating profit before exceptional items was $38
million (2003: $62 million loss) following zinc production of 410,700
tonnes and an average zinc price received of 48 c/lb (2003: 38 c/lb).
Skorpion mine entered commercial production in May 2004. The operation
produced 119,200 tonnes of zinc during 2004 and achieved 95% of
capacity by year end. Lisheen saw lower production of zinc and lead due
to lower grades and reduced mining rates ahead of the commissioning of
the pastefill plant which commenced in October 2004. Black Mountain
continued to experience lack of mining flexibility ahead of the Deeps
orebody entering production. Mill throughput was maintained and zinc
production rose 9% but lower grades resulted in lead production of
37,500 tonnes (2003: 39,600 tonnes). Currency effects at all operations
placed significant upward pressure on costs.
The sinking of both the main and ventilation shafts at Black Mountain
is complete and hoisting operations commenced in early 2005. The
development of the Deeps mine and the ramping up of zinc production
will continue throughout 2005. The final estimated cost of the project
is $125 million, against a budget of $110 million, as a result of the
strength of the rand.
Hudson Bay, which contributed $37 million to operating profit in 2004,
was sold in December for $257 million, resulting in a $42 million loss
on the sale. A decision was also made to impair the carrying value of
Black Mountain by $100 million.
Outlook
A weaker US dollar and low metal inventories should provide a solid
support to dollar-denominated prices. Nonetheless, some base metals
markets could move towards balance or even into surplus in the second
half as price-induced supply increases gather pace.
FERROUS METALS AND INDUSTRIES
$ million 2004 2003
Total operating profit before exceptional 895 208
items
Kumba 205 33
Highveld Steel 168 11
Scaw Metals 101 70
Samancor 236 41
Boart Longyear 67 33
Tongaat-Hulett 69 10
Terra 53 14
Other (4) (4)
Total operating profit after exceptional 1,050 208
items
Headline earnings 480 107
EBITDA 1,249 441
Net operating assets 5,534 4,629
Capital expenditure 284 195
Share of Group headline earnings (%) 18 6
Share of Group net operating assets (%) 15 16
Ferrous Metals and Industries lifted operating profit before
exceptional items to record levels in 2004, from $208 million to $895
million. The business benefited from improved prices for iron ore,
manganese, ferrochrome, steel and vanadium. In addition, significant
progress was made in efficiency improvements and cost saving
initiatives which totalled $103 million.
Markets
World crude steel production in 2004 increased by 8.8% over 2003, to a
record level at 1.05 billion tonnes of crude steel, while China
produced 272.5 million tonnes of crude steel, an increase of 23.2%. The
South African steel market was also characterised by strong local
demand, rising by 20%.
In respect of US fertiliser group, Terra, a previous impairment of $154
million was released during the year as an operating exceptional gain.
Anglo American`s entire shareholding in Terra was sold for $255
million, resulting in a further exceptional gain of $13 million.
In January 2005, Highveld Steel and Samancor sold half their
shareholdings in Acerinox. Anglo American`s attributable share of the
proceeds was $69 million. In February 2005, Anglo American and BHP
Billiton announced that they had reached agreement for the sale of
their respective 40% and 60% shareholdings in Samancor Chrome for an
enterprise value of $469 million.
Operating performance
Kumba`s contribution to Anglo American`s operating profit before
exceptional items was $205 million (as a subsidiary) compared with $33
million in 2003 (representing a 20.1% attributable equity interest for
10 months and as a subsidiary for one month). This performance
reflected higher commodity prices, solid operational performances and
margin-improvement initiatives, countered to some extent by the strong
rand. The global market for seaborne iron ore increased by an estimated
95 million tonnes in 2004. Kumba`s iron ore operations benefited from
an average 19% annual increase in dollar-denominated prices, with
effect from 1 April, and further significant increases are anticipated
in 2005. Its Sishen and Thabazimbi mines produced a total of 30.1
million tonnes of iron ore during the year, of which 20.9 million
tonnes were exported.
Regarding Kumba`s Hope Downs iron ore project in Australia, which has
been the subject of a dispute with a local partner, Kumba is appealing
a recent arbitration decision. Subject to Kumba`s rights of appeal, the
process for determining a fair value, at which the local partner can
elect to acquire Kumba`s project interest, has commenced. Until Kumba`s
participation in the project is finally resolved, it continues to
perform its contractual obligations in respect of the project.
Scaw Metals` operating profit was $101 million (2003: $70 million).
This was achieved against a background of greatly increased
international steel making raw material prices and resulting input cost
increases, offset to some extent by higher selling prices. Production
was higher, with strong performances in most divisions. Import
competition, however, aided by the strong rand and weak dollar,
continued to have a negative effect on some of Scaw`s downstream
businesses.
The attributable share of Samancor`s operating profit amounted to $236
million (2003: $41 million). The manganese business had an outstanding
year, benefiting from improved market conditions as a result of product
shortages, driven primarily by Chinese crude steel production. This led
to significantly higher alloy prices being achieved in 2004. The chrome
operations benefited similarly from higher ferrochrome prices, offset
to some extent by the strong rand. The benchmark ferrochrome price rose
by 60% to average 61 USc/lb during the year.
Highveld Steel had a record year, with an operating profit of $168
million (2003: $11 million). This was largely a result of higher prices
for steel, vanadium and manganese alloys, together with increased
volumes sold into the South African market. Production costs were well
controlled and cost savings of $38 million were achieved, resulting in
substantially higher operating margins. Ferrovanadium prices increased
from historically low levels in early 2003 of around $6/kgV to recent
levels of $52/kgV. All divisions, with the exception of Vanchem,
exceeded 2003 production volumes.
Boart Longyear`s operating profit totalled $67 million (2003: $33
million). Product and contracting results in the Americas and Asia
Pacific were substantially better than last year owing to much higher
drilling activity, while those in sub-Saharan Africa improved as a
result of increased sales of rockdrills and capital equipment. The
Hardmaterials and Wendt operations benefited from restructurings
undertaken in 2003, and Wendt also profited from increased machine
sales as a result of the improved business environment. The European
business continued to struggle, posting a loss for the full year.
Tongaat-Hulett`s operating profit was $69 million (2003: $10 million).
The aluminium division performed well on the back of increased volumes,
an improved product mix, and reduced costs, while the sugar division`s
profitability was negatively impacted by the relatively small South
African sugar crop. Import competition and higher maize input costs
adversely affected the starch and glucose operations. A new maize
procurement model and product pricing was implemented in the fourth
quarter, which will benefit profitability. Moreland Properties posted
strong results capitalising on buoyant demand across all its
portfolios.
Terra generated an attributable operating profit before exceptional
items of $53 million (2003: $14 million), largely reflecting the higher
nitrogen margins.
Outlook
Ferrous metal prices may soften in the coming year as anticipated
Chinese demand for steel slows. China`s domestic steel consumption
growth rate has reportedly fallen as the country shifts from being the
world`s biggest steel importer to a net exporter. The persistent
strength of the rand is expected to continue to affect margins
adversely in the coming year. Ferrous Metals and Industries will
continue to reshape its portfolio around core businesses, focusing on
increased iron ore output and improved margins through greater
operating efficiencies and cost saving initiatives.
COAL
$ million 2004 2003
Total operating profit 487 333
South Africa 244 133
Australia 79 130
South America 164 70
Headline earnings 351 232
EBITDA 686 505
Net operating assets 2,539 2,152
Capital expenditure 217 207
Share of Group headline earnings (%) 13 14
Share of Group net operating assets (%) 7 7
Operating profit increased by 46% to $487 million, mainly due to higher
export prices and a 3 million tonne (3%) rise in sales.
Markets
During the year, coal demand was strong and prices increased markedly.
Metallurgical coal prices were driven by robust steel sector raw
material demand, led by sustained Chinese economic growth and rising
imports, a tight supply situation and logistics chain constraints.
Healthy thermal coal offtake in China moderated the level of Chinese
exports.
Power, oil, gas and thermal coal prices were influenced by continued
inefficiencies in the logistics chain, mainly affecting South Africa
and Australia, coupled with global energy demand and security of supply
concerns. Relatively small imbalances in supply and demand continue to
bring significant price and directional uncertainty to the world`s
energy and raw material markets, especially for thermal coals. Spot
South African steam coal prices increased by 73% during the first six
months and although they had reduced by 25% at year end, they remain
well above historic average price levels.
Operating performance
Operating profit for South African-sourced coal, at $244 million, was
83% higher than in 2003 and export prices were up 42%. The rand
continued to strengthen against the dollar, reducing headline earnings
by $17 million.
Production rose by 5% to 54.5 million tonnes. This reflected strong
domestic demand from Eskom, the South African power utility, which led
Kriel and New Vaal collieries to produce at record levels. Plans are in
place to acquire additional mining equipment for New Denmark, the other
colliery serving the domestic market, so that it can increase output
substantially in 2005. Production at most of the export mines was
slightly higher, with the exception of Bank and Landau, where difficult
mining conditions affected production.
Capital expenditure in South Africa rose by $27 million, mainly due to
the development of Isibonelo colliery, due to start production in 2005.
Following the signing of a memorandum of understanding with BHP
Billiton relating to the Western Complex reserves, a feasibility study
is investigating the optimal use of these reserves.
Operating profit for the Australian operations fell by 39% to $79
million. This was mainly because production ceased at Moranbah North
Mine (MNM) for eight months following a roof collapse at the tail end
of the longwall face in January 2004. The effects were partly mitigated
by an estimated $40 million, the proceeds from a related insurance
claim. Gains from exchange-rate hedges taken out during the year
dampened some of the adverse effects of the stronger Australian dollar
(up by 11% against the US currency). Following the roof strata collapse
at MNM, the longwall was relocated. Production resumed in late August
and by year end production rates were reaching targeted expectations.
However, the colliery produced 2.3 million tonnes less high-margin
coking coal than the previous year. At Dartbrook, output was marginally
down and production at Drayton was in line with prior year, while
Callide, Moura and Capcoal exceeded previous performances, which offset
MNM`s negative volume impact. Aggregate attributable saleable coal
production was in line with the previous year, at 25.6 million tonnes.
Total attributable sales declined by 4% to 25.5 million tonnes, though
domestic sales increased by 0.7 million tonnes, mainly driven by
generating capacity demand. Export sales were further limited by port
constraints at Dalrymple Bay Coal Terminal, though a port-allocation
system at Newcastle has helped eliminate ship congestion.
The Moura/Theodore/Dawson project was announced in December and is
scheduled to commence in early 2005. Work continues on the feasibility
study for Lake Lindsay, adjacent to the Capcoal complex.
On 18 June, a Supreme Court decision on the Grasstree project`s
compliance with the Coal Mining Safety and Health Regulations resulted
in Grasstree suspending operations. This suspension was lifted at the
beginning of December and Grasstree remains on schedule to start up
during 2006. Dartbrook successfully made the transition to the Kayuga
seam during the first six months.
Anglo Coal has now acquired all the shares in Australian Power and
Energy Limited (APEL) that it did not previously own. APEL is
conducting a pre-feasibility study into producing liquid fuel from
brown coal in Victoria.
Operating profit at the South American operations rose by 134% to $164
million following significantly improved coal prices and a 9% increase
in attributable sales volume, to 9.9 million tonnes. These gains were
partly offset by increases in fuel prices and royalty payments and the
effects of the weakening dollar. In addition, equipment availability at
Venezuela`s Carbones del Guasare (CDG) was reduced by administration
problems with newly introduced exchange controls, although these
appeared to be under control by the year end.
Cerrejon continues to expand its operations, with a production goal of
28 million tonnes per annum by the end of 2006. Feasibility studies on
further expansion opportunities are under way at both Cerrejon and CDG.
Anglo Coal realised $51 million from efficiency improvements and cost
saving initiatives.
Outlook
With MNM back in operation, improved production is expected in 2005.
Rand and Australian dollar strength together with coal prices will
continue to be the two main variables. Metallurgical coal prices have
again risen substantially in negotiations for 2005, and high prices for
thermal coals - notwithstanding their reductions in the second half of
2004 - are expected to continue in the current year.
INDUSTRIAL MINERALS
$ million 2004 2003
Total operating profit before exceptional 346 325
items
Tarmac 280 290
Copebras 66 35
Total operating profit after exceptional 337 325
items
Headline earnings 267 270
EBITDA 624 557
Net operating assets 4,729 4,304
Capital expenditure 299 316
Share of Group headline earnings (%) 10 16
Share of Group net operating assets (%) 13 14
Operating profit before exceptional items increased by 6% to $346
million. Tarmac group`s operating profit before exceptional items
declined by 3% to $280 million, mainly due to challenging market
conditions in the UK. In contrast, Copebras benefited from buoyant
local market conditions and increased international fertiliser prices
which, together with the increased production
