| Thu 4 Aug 2005, 9:38 | | Anglo American PLC - Interim results for 30 June 2 |
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Anglo American PLC - Interim results for 30 June 2005
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ANAAL
Anglo American PLC - Interim results for 30 June 2005
ANGLO AMERICAN PLC
(the `Company`)JSE Code: AGL
ISIN Code: GB0004901517
Segmental information
Primary reporting format - by business segment Operating profit
Revenue(1) before special items(2)(3)
6 months 6 months Year 6 months 6 months Year
ended ended ended ended ended endedUS$ million 30.06.05 30.06.04 31.12.04 30.06.05 30.06.04 31.12.04
(5)
Subsidiaries
and jointventures
Platinum(6) 1,738 1,446 3,065 405 308 527
Gold 1,325 1,051 2,396 153 156 296
Coal 1,191 828 1,914 243 115 321Base Metals 1,629 1,548 3,232 721 576 1,280
Industrial 2,021 1,831 3,833 191 179 416
Minerals
FerrousMetals and 3,175 2,380 5,137 667 266 591
Industries
Paper and 3,431 3,262 6,691 226 322 575
PackagingExploration - - - (67) (56) (120)
Corporate - - - (131) (108) (245)
Activities
Totalsubsidiaries 14,510 12,346 26,268 2,408 1,758 3,641
and joint
ventures
AssociatesPlatinum 29 29 55 5 6 9
Gold 8 7 13 1 - -
Diamonds 1,628 1,647 3,177 297 340 573
Coal 288 212 468 131 86 176Base Metals - 44 88 - (8) (4)
Industrial 14 12 25 2 2 5
Minerals
FerrousMetals and 519 803 1,526 124 128 296
Industries
Paper and 149 109 228 7 6 (6)
PackagingCorporate - 90 90 - 7 7
Activities
Total 2,635 2,953 5,670 567 567 1,056
associatesTotal Group 17,145 15,299 31,938 2,975 2,325 4,697
operations
Net operating assets(4)
6 months 6 months Year ended ended ended
US$ million 30.06.05 30.06.04 31.12.04
Subsidiaries and joint
venturesPlatinum(6) 6,612 6,618 7,607
Gold 7,105 6,971 7,459
Coal 2,350 2,105 2,546
Base Metals 4,928 5,473 5,180Industrial Minerals 4,622 4,535 4,864
Ferrous Metals and
Industries 4,355 5,017 5,592
Paper and Packaging 6,636 6,166 6,879Exploration - - -
Corporate Activities 13 34 14
Total subsidiaries and
joint ventures 36,621 36,919 40,141Associates
Platinum
Gold
DiamondsCoal
Base Metals
Industrial Minerals
Ferrous Metals andIndustries
Paper and Packaging
Corporate Activities
Total associatesTotal Group operations
Anglo American reports record interim headline earnings for 2005, up 43%
Record interim results - headline earnings up 43% to $1.8 billion
Interim dividend rebased to 28 US cents per share, up 47%Record performances from Base and Ferrous Metals; higher contributions from
Platinum and Coal, reflecting stronger prices and volumes
Cost savings and efficiency improvements exceed target at $303 million, up 22%
Ongoing asset optimisation: disposals with an enterprise value of $1.2 billioncompleted
Strong cash generation: EBITDA up 25% at $4.2 billion
5 major new projects approved totalling $1.2 billion; $5.1 billion expansion
programme on trackAngloGold Ashanti achieves SA mining rights conversion
HIGHLIGHTS FOR THE SIX 6 months 6 months %
MONTHS ENDED 30 JUNE 2005 ended ended change
30.06.05 30.06.04 IFRS IFRS
US$ million, except per
share amounts
Group revenue including 17,145 15,299 12.1%associates(1)
Operating profit including 2,975 2,325 28.0%
associates before special
items(2)Profit for the financial 1,838 2,226 (17.4)%
period attributable to
equity shareholders(3)
Headline earnings for the 1,784 1,248 42.9%period(4)
Net operating assets 36,621 36,919 (0.8)%
EBITDA(5) 4,249 3,400 25.0%
Net cash inflows from 2,931 2,135 37.3%operating activities
Basic earnings per share
(US$):
Profit for the period 1.27 1.56 (18.6)%attributable to equity
shareholders
Headline earnings for the 1.24 0.87 42.5%
financial period(1) Includes the Group`s share of associates` turnover of $2,635
million (June 2004: $2,953 million). See note 4 to the financial
information.
(2) Includes share of associates` operating profit (beforeshare of associates` tax and finance charges). See note 4 to the
financial information.
(3) The decrease in profit attributable to equity shareholders
to $1,838 million is due to a reduction in net profit ondisposals compared with the prior period.
(4) See note 8 to the financial information for basis of
calculation of headline earnings.
(5) EBITDA is operating profit before special items plusdepreciation and amortisation of subsidiaries and joint ventures
and share of EBITDA of associates. EBITDA is reconciled to cash
inflows from operations in note 16 to the financial information.
First half results - overviewHeadline earnings increased to $1.24 per share, up 43% over the first half of
2004 - a record interim level. Operating profit(1) for the half year was $2,975
million, with strong contributions from Base Metals and Ferrous Metals. Kumba
and Highveld Steel in particular benefited from higher prices and improvedvolumes. There were also significant increases in contributions from Coal and
Platinum. Industrial Minerals recorded higher earnings reflecting a full
contribution in the first half from the new Buxton cement plant. Diamonds and
Gold were once again affected by the ongoing firmness of the South Africancurrency: the contribution from Diamonds, before exchange gains on preference
shares, was lower than for the prior period, while AngloGold Ashanti`s results
were in line with the first half of 2004. Paper and Packaging recorded lower
earnings in tough market conditions.The significant growth in operating profit in the first half reflects the
ongoing favourable trading environment for many of the Group`s commodities, as
well as the progress made over the past few years in improving the operating
efficiency of Anglo American`s assets, growing the asset base and leveragingprocurement spend. Prices for platinum, gold, diamonds, coal, and base and
ferrous metals remained healthy on the back of robust growth in China and the
US, coupled with limited growth in productive capacity. The Group`s strong cash
generation provides it with the flexibility to continue with its significantorganic growth profile as well as to pursue its disciplined acquisition process
in creating a balanced portfolio of high quality natural resource assets.
Over the past three years, Anglo American`s focus on improving the operating
efficiency of its assets and the management of the procurement and supply chainhas delivered cost savings in excess of $1.2 billion, across all of its business
units. In the first half, further cost savings and efficiency improvements of
$303 million were attained, an increase of 22% over the prior period.
These cost savings helped contain the cumulative effect of the significantincreases in energy, steel and other consumable prices, treatment and refining
charges and labour costs at many of the Group`s mining operations. Anglo
American will maintain its cost savings and efficiency programmes in the second
half.Cash generation (EBITDA) also benefited from the strong operational results,
reaching $4.2 billion, up 25% from last year`s interim level.
Interim dividend
In line with the Group`s progressive dividend policy and reflecting the strongfirst half increase in earnings, the interim dividend has been rebased to 28 US
cents per share from 19 US cents per share, an increase of 47%. The level of the
total dividend will, as always, be considered on the basis of the full year`s
results.Growing the asset base
Since its primary listing in London in mid-1999, Anglo American has spent $15
billion on acquisitions and its growth profile is one of the strongest in the
industry, with $5.1 billion of approved projects and $8 billion of unapprovedprojects across a range of commodities. In the first half, good progress was
made on the project pipeline, with some projects moving to full production, in
addition to a number of new projects being approved.
Kumba, 66% owned, continued to pursue a number of growth opportunities in ironore. In March, a major expansion project at the Sishen iron ore mine in South
Africa`s Northern Cape province was announced. The $365 million Sishen Expansion
Project will increase Sishen`s production from the current 28 million tonnes per
annum to 38 million tonnes per annum by 2009. Construction work has commencedwith production ramp-up planned for mid 2007.
An investment decision on the Sishen South project, with an initial production
capacity of 3 million tonnes per annum and the potential to increase to 9
million tonnes per annum, is expected in the third quarter of 2005. Work on thefeasibility study of the Faleme project in Senegal, West Africa, which has a
capacity of up to 12 million tonnes per annum, is also progressing well.
(1) including operating profit of associates and before special items
De Beers approved the development of the Snap Lake project in Canada at a costof $513 million. Snap Lake, located in the Northwest Territories, will be De
Beers` first mine outside of Africa and the first fully underground diamond mine
in Canada and will begin production in 2007. The $791 million Victor project in
Canada has also been approved, subject to regulatory approvals.The $67 million Codemin 2 nickel project in Brazil, which was commissioned on
time and on budget towards the end of 2004, reached design capacity in May this
year and will take Codemin`s total annual production to 10,000 tonnes of nickel.
In June, the $454 million Skorpion zinc project reached design capacity and the$21 million expansion of the Chagres smelter will be completed in the fourth
quarter of 2005. The feasibility study on the Barro Alto nickel project in
Brazil will be completed by early 2006 and scoping studies for significant
brownfield expansions at Los Bronces and Collahuasi are in progress.In July 2005, the $65 million Isibonelo coal mine in South Africa entered
production on track and on budget. When it reaches full production in 2006, the
mine will supply 5 million tonnes of thermal coal to Sasol Synfuels. In
Colombia, the approved expansion at Cerrejon from 22 to 28 million tonnes perannum by 2007 is also on track and a further expansion to 32 million tonnes per
annum has recently been approved. The Grasstree project in Australia is
progressing well, with weekly development exceeding plan and installation of the
longwall on target for 2006. The $650 million Dawson project has commenced andorders for some of the critical lead-time equipment have been placed.
China is already a significant market for many of the Group`s commodities and
the Group continues to actively look for further investment opportunities within
the country. On 1 June, Anglo American committed to invest $150 million in theInitial Public Offering of China Shenhua Energy Company Limited, the largest
coal producer in China and the fifth largest in the world. Anglo American looks
forward to a mutually beneficial strategic alliance with the company.
In South Africa, the Richards Bay pulp mill modernisation and expansion projecthas been commissioned and ramp-up is ahead of budget. It is anticipated that
full production of an additional 145,000 tonnes of pulp per annum will be
achieved during 2006. The $174 million PM31 paper machine rebuild at Merebank is
on track for commissioning at the end of 2005 and will bring additional capacityof 160,000 tonnes per annum.
Anglo Platinum, which continues to expand production in line with robust current
and future demand for platinum group metals, recently announced the $35 million
Marikana venture with Aquarius Platinum to jointly mine contiguous properties inthe Rustenburg area. The existing $138 million Kroondal venture, also with
Aquarius Platinum, commenced production from its new 250,000 tonnes per month
concentrator ahead of schedule. The $200 million 50:50 Mototolo joint venture
with Xstrata plc, announced this week, will access adjacent farms on the easternlimb of the Bushveld complex and produce 132,000 ounces of platinum and 82,000
ounces of palladium in concentrate with first production in 2006. Anglo Platinum
is also proceeding with a $179 million project at its Lebowa mine to replace
declining reserves.In addition to the future potential of Obuasi Deeps in Ghana and the Boddington
joint venture expansion project in Australia, AngloGold Ashanti has a $1.3
billion total capital expenditure programme currently focused on existing
operations in South Africa and Brazil. These projects, including the new Moabmine in South Africa, will come online within the next three years and yield a
total production of around 15 million ounces of gold over the life of these
operations.
DisposalsAs part of the ongoing strategy of optimising the Company`s asset base, a number
of disposals have been made during the past six months. The biggest of these was
Boart Longyear, a manufacturer of mining equipment, which was agreed in June at
an enterprise value of $545 million. Together with the sale of Wendt (part ofBoart Longyear) that was announced on 31 March, the total enterprise value
achieved amounted to $635 million. The sale was completed in July.
In February 2005, Anglo American and BHP Billiton announced that they had
reached agreement for the sale of their respective 40% and 60% shareholdings inSamancor Chrome at an enterprise value of $469 million. In May, Highveld
Steel sold its remaining stainless steel investments, Acerinox and Columbus, at
an attributable enterprise value of $91 million. This followed the $70m
attributable enterprise value disposal of Acerinox shares made by the Group inJanuary 2005.
In July, Kumba`s local partner in the Hope Downs iron ore project in Australia
exercised an option to purchase Kumba`s 49% interest in the project for $176
million.SA mining rights
The achievement by AngloGold Ashanti of the conversion of its mineral rights in
South Africa in respect of the Minerals and Petroleum Development Act (`the
Act`) is a significant milestone in terms of South African Black EconomicEmpowerment. It recognises the substantial empowerment transactions put in place
by AngloGold Ashanti, as well as the educational, community and social
programmes in place in the company. The intention is to introduce an Employee
Share Ownership Scheme that will extend ownership in AngloGold Ashanti to itsemployees.
The granting of the new order mining rights represents real progress in terms of
the South African government`s desire to achieve certainty in terms of
implementing the Act. Anglo American is greatly encouraged by this positiveoutcome which reflects the open and constructive dialogue between the Group`s
mining businesses and the SA Department of Minerals and Energy.
Outlook
The outlook for most of the Group`s commodities remains sound. Dollar prices formany metals and minerals have continued at high levels on the back of strong
Chinese growth which has offset weaker OECD demand in the first half. If Chinese
demand continues at current levels and prospects for OECD growth improve in the
second six months, the Group`s earnings should remain strong for the remainderof the year.
Anglo American continues to generate substantial cash flows which it is
investing in its $5.1 billion approved project pipeline. The growth projects
span all of the Group`s business sectors and will generate attractive returns.Further projects, growth opportunities and asset optimisations are being
evaluated.
For further information,
please contact:Investor Relations Media Relations
Nick von Schirnding Kate Aindow
Tel: +44 207 968 8540 Tel: +44 207 968 8619
Charles Gordon Daniel NgwepeTel: +44 207 968 8933 Tel: +27 11 638 2267
Anne Dunn
Tel: +27 11 638 4730
Webcast: a live webcast of the interim results presentation starting at 10.00amUK time on 4th August can be accessed through the Anglo American website at
www.angloamerican.co.uk.
Pictures: high resolution images can be downloaded by the media at
www.vismedia.comAnglo American plc is one of the world`s largest mining and natural resource
groups. With its subsidiaries, joint ventures and associates, it is a global
leader in platinum group metals, gold and diamonds, with significant interests
in coal, base and ferrous metals, industrial minerals and paper and packaging.The group is geographically diverse, with operations in Africa, Europe, South
and North America, Australia and Asia.
Note: Throughout this press release `$` denotes United States dollars and
`cents` refers to United States cents; special items are defined in note 5 andheadline earnings are calculated as set out in note 8 to the financial
information. EBITDA is operating profit before special items plus depreciation
and amortisation of subsidiaries and joint ventures and share of EBITDA of
associates. EBITDA is reconciled to cash inflows from operations in note 16 tothe financial information.
Financial review of Group results
Headline earnings per share for the half year increased to $1.24 per share, up
43% over the first six months of 2004. Headline earnings totalled $1,784million, with strong contributions from Base Metals and Ferrous Metals as well
as a significant increase in contributions from Coal and Platinum. Industrial
Minerals also increased its contribution over the previous period, while
AngloGold Ashanti`s results were in line with the prior corresponding period.The contribution from Diamonds before exchange gains and losses on preference
shares declined. Paper and Packaging recorded lower earnings owing to tough
market conditions.
The Group performance was further enhanced by a lower effective tax rate, as setout on the following page, and a $59 million reduction in net finance charges
resulting principally from a $91 million exchange gain on the De Beers
preference shares.
Headline earnings 6 months 6 months 30 June 30 June
$ million 2005 2004
Profit for the financial period 1,838 2,226
attributable to equity holdersOperating special items 55 -
Net loss/(profit) on disposals 1 (1,005)
Associates net profit on disposals (68) (2)
Tax on special items (28) 32Related minority interests (14) (3)
Headline earnings 1,784 1,248
Headline earnings per share ($) 1.24 0.87
Profit for the period after special items decreased by 17% to $1,838 millioncompared with $2,226 million in the first half of 2004. This decrease was due to
a reduction in net profit on disposals which, including associates, was $940
million higher in the first half of 2004, with the $464 million profit on the
sale of the Group`s interest in Gold Fields and the $415 million gain on thedeemed disposal of AngloGold.
Summary income statement 6 months 6 months
30 June 30 June
$ million 2005 2004Operating profit before special items 2,408 1,758
Special items (55) -
Group operating profit before 2,353 1,758
associatesNet (loss)/profit on disposals (1) 1,005
Net income from associates (1) 407 330
Profit before finance costs 2,759 3,093
Net finance costs (102) (161)Profit before tax 2,657 2,932
Tax (526) (516)
Profit after tax 2,131 2,416
Minority interests (293) (190)Profit for the financial period 1,838 2,226
attributable to equity holders
Earnings per share ($) 1.27 1.56
Group operating profit including 2,975 2,325associates before special items (1)
(1) Operating profit from associates 567 567
Net profit on disposals 68 2
Net finance costs (40) (66) Income tax expense (185) (164)
Underlying minority interest (3) (9)
Net income from associates 407 330
The Group`s results are influenced by a variety of currencies owing to thegeographic diversity of the Group. The South African rand on average
strengthened against the US dollar compared with the comparative period, with an
average exchange rate of R6.21 compared with R6.67 in the first half of 2004.
Currency movements positively impacted headline earnings by $44 million, withthe favourable exchange gain on the De Beers preference shares more then
offsetting the impact on operating results of the strengthening of the rand.
There was also a positive impact of increased prices amounting to $887 million.
Special itemsOperating special charges in respect of impairment and mine closure amounted to
$55 million including a $31 million loss on the closure of Ergo in AngloGold
Ashanti.
Net profit on sale of operations, including associates, amounted to $67 million.These included $52 million profit on sale of Samancor Chrome, $25 million profit
on sale of Acerinox and $21 million profit on sale of Wendt. This was partially
offset by a $50 million loss on the anticipated disposal of Hope Downs.
Special items including associates were significantly higher in the first halfof 2004 at $1,007 million with the sale of the Group`s interest in Gold Fields
for a profit of $464 million, a gain of $415 million on the deemed disposal of
AngloGold and gains on disposal of the Group`s interests in First Rand Limited,
Nkomati and Avgold.Net finance costs
Net finance costs decreased from $161 million in the first half of 2004 to $102
million. The decrease reflects the favourable exchange gain of $91 million on
the De Beers preference shares.Taxation
$ million Before Associates` Including Before Associates` Including
special tax 30 June Associates special tax Associates
items 2005 30 June items 30 June 30 June 30 June 2005 30 June 2004 2004
2005 2004
Profit 2,645 185 2,830 1,925 164 2,089
before taxTax (554) (185) (739) (484) (164) (648)
Profit for 2,091 - 2,091 1,441 - 1,441
financial
periodEffective tax rate 26.1% 31.0%
including associates
The effective rate of taxation including share of associates` tax before special
items was 26.1%. This was a decrease from the effective rate including share ofassociates` tax of 31% in the six months ended 30 June 2004. The reduction in
the effective tax rate was principally due to a reduction in the South African
statutory rate from 30% to 29% and a reduction in the Ghanaian tax rate, which
resulted in a $136 million reduction in deferred tax, the benefit of which wastaken in the six month results. Without this one off benefit the effective tax
rate for the period would have been 30.9%. In future periods it is expected the
effective tax rate, as adjusted above for associates` tax, will remain above the
statutory rate of 30%.Balance sheet
Total shareholders` equity was $22,067 million compared with $23,125 million as
at 31 December 2004. The decrease was primarily due to exchange movements.
Net debt was $7,030 million, a decrease of $1,420 million from 31 December 2004,restated for the adoption of IAS 32 and IAS 39. The reduction was principally
due to exchange movements of $843 million as well as cash inflow of $600
million. Net debt at 30 June 2005 comprised $9,711 million of debt (net of hedge
of $24 million), offset by $2,681 million of cash, cash equivalents andcurrent financial asset investments. Net debt to total capital as at 30 June
2005 was 21.1%, compared with 22.9% at 31 December 2004.
Adoption of IAS 32 and IAS 39 prospectively from 1 January 2005 gave rise to a
net reduction in total shareholders` equity of $5 million. Additional detail ofthe adjustments is provided in note 24 to the financial information. The net
impact largely represents the recognition and fair value of derivatives,
including embedded derivatives; the fair value of investments that were
previously cost accounted; and the separation of the equity conversion optionwithin convertible debt instruments. Pro forma 2004 information, adjusted for
these two standards is provided in the appendix.
Cash flow
Net cash inflows from operating activities was $2,931 million compared with$2,135 million in the first half of 2004. EBITDA was $4,249 million, up
significantly from $3,400 million in the first half of 2004. Depreciation
increased by $236 million to $1,199 million.
Acquisition expenditure accounted for an outflow of $300 million compared with$957 million in the first half of 2004. This included $150 million in respect of
the Group`s investment in the Initial Public Offering of China Shenhua Energy
Company Limited.
Income from disposals totalled $293 million, with proceeds on the sale ofAcerinox and Columbus of $194 million and Wendt of $62 million. Proceeds
remitted by associates in respect of disposals included $83 million for the sale
of Samancor Chrome.
Repayment of loans and capital from associates amounted to $208 million.Purchases of tangible fixed assets amounted to $1,433 million, a similar level
to the first half of 2004.
Dividends
An interim dividend of 28 US cents per share to be paid on 20 September 2005 hasbeen declared.
OPERATIONS REVIEW
In the operations review on the following pages, operating profit includes
associates` operating profit and is before special items unless otherwisestated.
Ferrous Metals and Industries
$ million 6 months 6 months
ended ended 30.06.05 30.06.04
Operating profit including associates 791 394
Kumba 246 98
Highveld Steel 261 67 Scaw Metals 58 46
Samancor Group 121 89
Tongaat-Hulett 56 28
Boart Longyear 55 30 Terra - 41
Other (6) (5)
EBITDA 961 563
Net operating assets 4,355 5,017Capital expenditure 133 144
Share of Group operating profit (%) 27% 17%
Share of Group net operating assets (%) 12% 14%
Operating profit reached a record $791 million compared with $394 million in thecorresponding period. This was attributable to sharply higher prices for
vanadium and iron ore, improved volumes and increased cost savings.
Significant progress has been made in reorganising the business as a supplier of
raw materials to the global carbon steel industry with the disposal of severalassets at an aggregate attributable enterprise value of $1 billion. 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 at an enterprise value of $469 million. In May, Highveld Steel sold itsremaining stainless steel investments, Acerinox and Columbus, for an
attributable enterprise value of $91 million. This followed the $70m
attributable enterprise value disposal of Acerinox shares made by the Group in
January 2005. The sales of Boart Longyear`s subsidiary, Wendt, and the BoartLongyear Group were announced in March and June, respectively, at a combined
enterprise value of $635 million. In June, Anglo American announced the sale of
Zimbabwe Alloys at an enterprise value of $10 million.
Kumba`s operating profit increased by 151% to $246 million (2004: $98 million)on the back of stronger commodity prices and higher sales volumes, together with
solid operational performances and increased cost savings. From the second
quarter, Kumba benefited from the annual dollar denominated benchmark iron ore
price increase of 71.5% in Japan. On 1 July, Kumba received $176 million afterits local partner in Australia exercised its option to acquire Kumba`s interest
in the Hope Downs iron ore project. The funds will be returned to Kumba`s
shareholders.
Highveld Steel had a record first half, with an operating profit of $261 million(2004: $67 million). This was largely a result of significantly higher vanadium
prices and volumes, together with increased South African steel sales.
Scaw Metals achieved an operating profit of $58 million (2004: $46 million).
Higher raw material prices, particularly steel scrap, increased pressure onmargins, while South African steel volumes were impacted adversely by market
uncertainty around pricing.
The attributable share of Samancor`s operating profit amounted to $121 million
(2004: $89 million). The manganese and chrome operations benefited from higherore and alloy prices.
Tongaat-Hulett`s operating profit increased from $28 million to $56 million
owing to improved volumes and prices, reduced costs and a more favourable
aluminium sales mix.Offtake in the seaborne iron ore market remains strong, given Chinese crude
steel production. Vanadium and manganese prices for the rest of the year are
expected to be below those achieved in the first six months. South African steel
demand could recover in the fourth quarter, although prices may come underfurther downward pressure, in keeping with international trends.
Base Metals
$ million 6 months 6 months
ended ended 30.06.05 30.06.04
Operating profit 721 568
Copper 570 435
Nickel, Niobium, Mineral Sands 141 117 Zinc 29 31
Other (19) (15)
EBITDA 875 720
Net operating assets 4,928 5,473Capital expenditure 100 176
Share of Group operating profit (%) 24% 24%
Share of Group net operating assets (%) 13% 15%
Operating profit increased significantly by 27% to $721 million on the back ofhigher copper, nickel and zinc prices.
Copper production was impacted adversely by an estimated 20,000 (attributable)
tonne shortfall at Collahuasi arising from an outage of the main ore conveyor
system, a change in mine sequencing and a failure of a major mill motor (inrespect of which an insurance claim has been submitted). A recovery plan has
been implemented and mill throughput of above design capacity is being achieved,
but at marginally lower grades than budgeted.
Nickel production increased to 12,600 tonnes, following ramping up of the $67million Codemin 2 project, which was commissioned towards the end of 2004 within
budget and on time.
Namakwa Sands saw record production of zircon and rutile.
Skorpion`s zinc output was unchanged at 56,300 tonnes. A tankhouse fire inFebruary impacted production but it has since recovered well and 100% of design
capacity was achieved in June. Black Mountain increased output of zinc and lead
as it began to benefit from the higher grade Deeps orebody.
While cost savings and margin improvement targets continue to be achieved, theoperations experienced significant upward pressure in uncontrollable costs
arising from dollar weakness and increases in treatment and refining charges,
freight, steel, power, acid, fuel and other costs.
Current growth initiatives include the Barro Alto feasibility study for a 30,00035,000 tonnes per annum ferronickel operation in Brazil, as well as de-
bottlenecking projects at both Namakwa Sands and Catalao and scoping studies for
increases in production at Collahuasi and Los Bronces. The Chagres Smelter
expansion and the Collahuasi molybdenum projects remain within budget and ontime for commissioning in the fourth quarter.
Continued investor fund interest dominated base metal prices, which reached new
highs during the first quarter, thereafter easing, before surging again in June.
Conflicting signals continue to be seen, with weak first half demand in the OECDcontrasting with stronger than anticipated Chinese consumption. Inventories
remain at very low levels, although supply growth, particularly in the case of
copper, has continued to pick up.
Platinum$ million 6 months 6 months
ended ended
30.06.05 30.06.04
Operating profit 410 314EBITDA 610 465
Net operating assets 6,612 6,618
Capital expenditure 243 292
Share of Group operating profit (%) 14% 14%Share of Group net operating assets 18% 18%
(%)
Anglo Platinum`s operating profit rose by 31% to $410 million. Factors leading
to this increase included higher dollar prices realised on metals sold,increased production and sales volumes, and a one-off benefit arising from a
gain in the quantity of pipeline stocks. The adverse effect of the stronger
average rand on the translation of costs was largely offset by gains on foreign
exchange as the rand weakened during the first half of 2005.Refined platinum production for the first half of 2005 rose by 9.5% to 1,268,500
ounces. The increase was due mainly to a shortening of the process pipeline and
improved recoveries. Equivalent refined production from the mines managed by
Anglo Platinum and its joint venture partners decreased by 18,100 ounces. Thiswas primarily as a result of difficult geological and ground conditions at
Amandelbult, Rustenburg and Union that were partly offset by new production from
the expansion of the Kroondal Platinum Mine venture with Aquarius Platinum.
The current operational constraints at Amandelbult, Rustenburg and Union,together with the 2004 wage settlement of 8%, led to a 13.3% increase in rand
unit costs compared with the first half of 2004. The added effect of the
stronger average rand/dollar exchange rate for the period resulted in a cash
operating cost per equivalent refined ounce of platinum of $873. Costinitiatives, including supply chain savings, yielded savings of $12 million in
comparison with the 2004 cost base.
Anglo Platinum remains confident of the robustness of current and future demand
for platinum and is continuing with its expansion programme. The rate ofexpansion is reviewed on an ongoing basis, with particular emphasis on forecast
rand revenue streams, to ensure that returns are maintained and shareholder
value is enhanced. The recent weakening of the rand against the US dollar,
combined with strong prevailing metal prices, results in higher projectedreturns from the projects being evaluated. If this improvement appears
sustainable, the development of certain projects may be accelerated.
Increased production volumes in the second half of 2005 are expected to result
in refined platinum production of 2.6 million ounces for the full year. Demandfor platinum continues to be strong and remains supportive of firm platinum
prices. The most significant variable affecting operating profit in the second
half of 2005 will be the rand/dollar exchange rate.
Coal$ million 6 months 6 months
ended ended
30.06.05 30.06.04
Operating profit including 374 201associates
South Africa 205 93
Australia 48 26
South America 121 82EBITDA 476 286
Net operating assets 2,350 2,105
Capital expenditure 126 64
Share of Group operating profit (%) 13% 9%Share of Group net operating assets 6% 6%
(%)
Anglo Coal`s operating profit was $374 million, 86% higher than for the first
half of 2004, mainly as a result of improved export prices.Export thermal coal prices, although well above historic average levels, have
come off the peaks reached in 2004 and are currently at around US$50 per tonne.
In Europe, prices are being supported by a strong energy sector, high gas and
power prices and lower freight rates. Consequently, despite the increased costof carbon credits, coal fired generation is enabling European utilities to
realise healthy margins, which in turn underpin thermal coal price levels. In
Asia, demand remains similarly firm, although Chinese stocks have been
increasing. Coking coal markets remain firm, despite steel prices beginning tocome under pressure in some regions. In South Africa and Australia, constraints
associated with the rail and port infrastructure remain a concern.
Operating profit for South African sourced coal increased by 120% to $205
million. This reflects a 52% increase in export prices and a 1% increase insales volume underpinned by a 3% improvement in production to 26.6 million
tonnes. This production increase included 0.6 million tonnes from the new
Mafube mine.
In Australia, operating profit was $48 million, which included a $28 millioninsurance claim relating to last year`s incident at the Moranbah North coking
coal mine (the 2004 first half insurance claim amounted to $33 million).
Production increased to 12.7 million tonnes, including 1.9 million from Moranbah
North which did not produce in the first half of 2004. The operating resultswere impacted by geological difficulties which restricted production at the
Dartbrook thermal coal mine as well as the impact of carry over tonnage at
Moranbah North. Total sales from the Australia region were 7% higher and export
coal prices rose on average by 53%. Second half performance in Australia shouldbe materially better than the first half with increased production levels and
higher realised coking coal prices as new contracts become effective.
In Colombia, attributable sales tonnes increased by 4% to 4.3 million tonnes.
This, together with continued tight cost control, resulted in attributableoperating profit rising from $79 million in 2004 to $109 million. At the
Carbones del Guasare operation in Venezuela, attributable sales tonnes increased
by 1% to 0.8 million tonnes.
The new Isibonelo colliery project, which provides coal to Sasol in South Africaentered production in July, and satisfactory progress was made at the major
Grasstree and Dawson projects in Australia. At Cerrejon in Colombia, the
expansion to a total mine production of 28 million tonnes per annum is on track
and is expected to be completed on time, and below budget, by 2007. A furtherexpansion to 32 million tonnes has recently been approved. The initial drilling
programme at Xiwan in China was completed successfully and further drilling and
a pre-feasibility study will be concluded later this year.
Performance in the second half is expected to be positively impacted by the highprices for coking coal in Australia and completion of the carry-over contracts
at Moranbah North.
Diamonds
$ million 6 months 6 months ended ended
30.06.05 30.06.04
Share of associate`s operating 297 340
profitEBITDA 337 375
Group`s share of De Beers` net 2,114 2,052
assets (1)
Share of Group operating profit (%) 10% 15%(1) De Beers is an independently managed associate of the Group. The Group`s
share of De Beers` net assets is disclosed.
The figures for the Group`s share of net operating assets shown for other
businesses relate to the Group`s subsidiaries only.Attributable operating profit from De Beers of $297 million represented a 13%
reduction against $340 million for the corresponding period last year. The
decrease was mostly due to the impact of a weaker dollar and to tighter margins
arising largely from a significant reduction in stockpile realisations.Total production from De Beers and its partners grew by 23% to 23.7 million
carats. As a result of the increased output, stocks have risen by about $400
million compared with the levels as at 30 June 2004.
Despite mixed economic data, it is estimated that demand for diamond jewelleryin the United States was up by 6% on the same period last year. Larger chains
and high-end independents have shown the strongest results and polished prices
have started to edge up at the consumer level. Performance in other markets was
mixed. The local currency value of global diamond jewellery sales is estimatedto be 5% higher than for the equivalent period in 2004. De Beers is currently
forecasting growth of 6% in local currency retail demand for the full year owing
to the level and quality of diamond marketing activity, as well as regional
macro-economic strength.Throughout the first half, demand for rough diamonds from the cutting centres
was strong. Sales by The Diamond Trading Company (DTC), the marketing arm of De
Beers, rose by 8% to total $3.2 billion. The DTC raised its rough diamond prices
on two occasions.De Beers recently announced the approval of two projects in Canada, the $513
million Snap Lake project and the $791 million Victor project (which is subject
to regulatory approvals). Further expansion projects are under evaluation.
During the reporting period, agreement was reached with Endiama, the Angolanstate mining company, for the establishment of a joint venture for the
exploration of diamonds.
In early June, the European Commission published a notice indicating its
intention to accept the commitments offered by De Beers and the Russian diamondproducer Alrosa in relation to the Alrosa Trade Agreement and allowed a 30-day
period for public comment. The Commission is now considering any third party
comments received.
The Group`s share of De Beers` headline earnings was $153 million (30 June 2004:$183 million). Headline earnings for Diamonds totalled $270 million (30 June
2004: $169 million) and included preference share income of $26 million (30 June
2004: $35 million) and exchange gains related to the preference shares of $91
million (30 June 2004: $49 million loss). On 30 June 2005, De Beers redeemed afurther 25% of the total 10% preference shares originally in issue, with Anglo
American receiving $175 million.
The market for rough diamonds remains firm and it is expected that, unlike in
previous years, sales in the second half of 2005 will at least match those ofthe first six months and that stocks will reduce. This should have a beneficial
impact on both cash flow and earnings.
Paper and Packaging
$ million 6 months 6 months ended ended
30.06.05 30.06.04
Operating profit including associates 233 328
Packaging 132 170 Business Paper 89 119
Other 12 39
EBITDA 449 523
Net operating assets 6,636 6,166Capital expenditure 392 383
Share of Group operating profit (%) 8% 14%
Share of Group net operating assets (%) 18% 17%
Operating profit declined by 29% from $328 million to $233 million. While marginpressure continued across most key markets, Mondi delivered a further $96
million in cost savings and profit improvements.
The rebranding and reorganisation of the existing businesses under the Mondi
name announced in November 2004 has gone extremely well. This has served toreduce overhead structures and costs and improve the company`s visibility and
attractiveness to customers.
Mondi Packaging`s operating profit was $38 million lower at $132 million. The
marginal impact of acquisitions in early 2004 and significant cost-saving andprofit improvement initiatives have been offset by one-off restructuring costs
and weak trading conditions, the latter owing mainly to a combination of
lacklustre manufacturing growth in the core European markets and the strong euro
eroding competitiveness internationally. There have, however, been some positivesigns with improved order intake in the sack paper sector in recent months.
Mondi Business Paper`s operating profit was down by 25% at $89 million. Sales
volumes increased by 3%, mainly owing to additional output from the successful
Ruzomberok PM18 rebuild, while cost saving and profit improvement initiativesyielded benefits of $43 million. During the first six months pricing remained
under pressure owing to a strong euro attracting dollar denominated imports.
Capacity utilisation is gradually improving which, together with the stronger
dollar, is increasing the likelihood of price increases.The Richards Bay RB720 project has been commissioned and ramp-up is ahead of
budget, with full production expected during 2006. The PM31 paper machine
rebuild at Merebank is on track for commissioning at the end of 2005.
With effect from 1 January 2005, Mondi sold a 42% interest in its South Africanpackaging business to Shanduka Resources in an empowerment transaction that
values the entire business at $370 million.
The recent strengthening of the dollar may support a firming in euro based paper
prices. Efforts will intensify to ensure the continued delivery of costreductions and productivity gains.
Industrial Minerals
$ million 6 months 6 months
ended ended 30.06.05 30.06.04
Operating profit including associates 193 181
Tarmac 183 162
Copebras 10 19EBITDA 317 288
Net operating assets 4,622 4,535
Capital expenditure 120 130
Share of Group operating profit (%) 6% 8%Share of Group net operating assets (%) 13% 12%
Industrial Minerals` operating profit of $193 million was $12 million higher
than in the first half of 2004. Tarmac`s operating profit was 13% higher,
largely reflecting the additional contribution from the new Buxton cement plantwhich began operating in March 2004. Profits in Copebras were $9 million down on
2004 owing to the combined effects of the Brazilian currency`s appreciation
relative to the dollar and reduced seasonal demand in Brazil, partially
mitigated by improved prices.In the UK, demand was comparable with 2004 and volumes were slightly above last
year, though market conditions remain challenging. In general, margins were
favoured by price increases in January 2005 although higher hydrocarbon costs
lessened the benefit. Performance in the concrete products business wasmarginally better than in 2004, reflecting the benefits of restructuring;
however, the impact was undermined by lower demand in the housing market, which
particularly affected block sales. The cement plant at Buxton performed well, in
line with expectations.Tarmac has conducted a fundamental organisational review to facilitate
improvements in customer service and efficiency, with Industrial Minerals
achieving cost savings of $25 million in the year to date. The new organisation
brings the benefit of greater alignment with a changing customer base, whilebetter positioning Finance, HR, Procurement and other functions to lead
continuous improvement in the UK and international operations. Supplementing the
business development resources already established in the UK, Tarmac has
recently created a new business development function, based in Frankfurt, tofurther strengthen its ability to grow its international business.
Tarmac`s operating profit from its international businesses fell by 3%, largely
attributable to weaker demand in Germany and Poland. Profit in Tarmac France
improved 12% following small bolt-on acquisitions made in the past year. Thebusiness in Spain reported profits in line with last year on the back of
stronger demand for concrete, offset by the increased cost of raw materials.
Tarmac`s operations in the Middle East continue to benefit from strong local
demand. Progress continues in Tarmac China and a new quarry in the Shanghairegion, which was adversely affected by delays in securing local land access
rights, is now expected to commence operations in the second half of the year.
In Brazil, demand for fertiliser weakened following the drop in world soya
prices and the consequent reduction in the number of farmers planting the crop.This had a negative effect on fertiliser sales but was offset by improved sales
of other products and by higher prices.
The operational outlook for the year is for a continuation of challenging
conditions in the UK offset in part by improved performance in TarmacInternational. The impact of exchange rates will become more significant if the
recent appreciation in the dollar continues.
Gold
$ million 6 months 6 months ended ended
30.06.05 30.06.04
Operating profit 154 156
EBITDA 415 319Net operating assets 7,105 6,971
Capital expenditure 311 234
Share of Group operating profit (%) 5% 7%
Share of Group net operating assets 19% 19%(%)
Operating profit compared with the corresponding period was 1% lower at $154
million, with total cash costs increasing from $254 to $281 per ounce, owing to
inflationary cost increases and stronger operating currencies. These effectswere partially offset by an 8% increase in the realised dollar gold price, and
higher grades.
Gold production increased by 21% to 3 million ounces, following the inclusion of
Ashanti`s production for the full period compared to two months in the priorhalf year. The East and West Africa and Australia mines also posted increased
production, particularly at Morila and Sunrise Dam.
Management continues to focus on the turnaround of the Ashanti Goldfields
assets. AngloGold Ashanti has eight approved organic growth projects in thepipeline, including the Cuiaba expansion project in Brazil which was approved
during the period. These projects will contribute nearly 15 million ounces at a
weighted average cash cost of $184 per ounce. In addition there are sev
