| Wed 21 Feb 2007, 10:57 | | Anglo final results cont. 2 |
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On 31 January 2007 the European Commission formally announced that it had
decided to reject all of the outstanding complaints against De Beers and the
DTC in respect of the DTC Sales and Marketing policy, and the Russian Trade
agreement.
Outlook
The outlook for further growth in retail diamond jewellery sales remains
positive, with India and China likely to be the leading growth markets, and the
US continuing its five year growth trend. While DTC sales are likely to be
constrained by availability in 2007, due to the reduction in Russian purchases
as agreed with the European Commission, De Beers will benefit from bringing new
production on stream towards the end of the third quarter of 2007. De Beers
will focus on implementing its new vision of `maximising the value of its
leadership position`. This includes, in addition to new production, reviewing
assets that do not fit the De Beers portfolio criteria, focusing exploration on
the most prospective areas, continuing to improve cost efficiency and investing
in DBDJ and the `Forevermark` marketing programmes.
BASE METALS
$ million Year ended Year ended
31 Dec 2006 31 Dec 2005
Operating profit 3,876 1,678
Copper 3,019 1,381
Nickel, Niobium, Mineral Sands 405 249
Zinc 516 102
Other (64) (54)
EBITDA 4,214 1,990
Net operating assets 4,268 4,785
Capital expenditure 298 271
Share of Group operating profit 39% 26%
Share of Group net operating assets 15% 13%
Anglo Base Metals generated a record operating profit of $3,876 million (2005:
$1,678 million) on the back of increased copper, zinc, lead and ferroniobium
production and significantly higher metal prices, partially offset by
significant rises in the costs of energy and most key consumables.
Although copper and zinc treatment and refining charges eased, increases in
metal price linked smelter deductions and price participation saw a significant
increase in this component of costs. The strength of the Chilean and Brazilian
currencies against the dollar also adversely impacted operating profits.
Markets
Average LME prices (c/lb) 2006 2005
Copper 305 167
Nickel 1,095 668
Zinc 148 63
Lead 58 44
With global GDP growth remaining strong, average base metal prices moved
significantly upwards in 2006. Although copper demand was slightly weaker than
expected (with destocking by the Chinese and other manufacturers) and
price-induced substitution (particularly in respect of copper and nickel) was
also a feature, aggregate demand growth for base metals was largely as expected
at 5%-6%. The primary drivers of the dramatic increase in prices were tight
metal inventories (in turn, a reflection of weak mine supply growth arising
from a lack of investment in new capacity and further supply side disruptions,
particularly in the case of copper) and the significant and rapid inflow of
speculative and investor funds into commodities markets.
Operating performance
Copper Division 2006 2005
Operating profit ($m) 3,019 1,381
Attributable production (tonnes) 643,800 634,600
Los Bronces copper mine implemented measures to overcome the lower throughput
experienced in the first half arising from unexpectedly hard ore encountered in
the Donoso Este area. Production, which included a record amount of cathode,
was marginally lower at 226,000 tonnes (2005: 227,300 tonnes). El Soldado saw
increasing mining flexibility and grade as the year progressed and delivered
68,700 tonnes (2005: 66,500 tonnes). Mantoverde suffered some delays in dump
construction early in the year and output decreased by 3% to 60,300 tonnes.
Mantos Blancos reduced the dump leach area under irrigation but this was more
than offset by improved grades and recoveries in both the vat leach and
sulphide ore circuits, resulting in a 5% rise in production to 91,700 tonnes.
Notwithstanding intermittent production interruptions arising from the Rosario
crushing and conveying system and SAG Mill No. 3, Collahuasi lifted output to
440,000 tonnes (2005: 427,100 tonnes) largely as a result of a 13% improvement
in sulphide mill throughput. Molybdenum production rose materially to 3,400
tonnes (2005: 300 tonnes) in the first full year of molybdenum plant
production. Chagres increased production by 26% to 173,400 tonnes following the
completion of the expansion project at the end of 2005.
The $80 million El Soldado pit extension project was completed on time and
under budget. The Los Bronces feasibility study, which contemplates increasing
copper production by 75% at a cost of approximately $1.2 billion, will be
completed in mid-2007, while the Quellaveco revised feasibility study,
examining a project with production of copper of around 200,000 tonnes per
annum at a capital cost of approximately $1.2 billion, will be complete in
2008. Evaluation of the progressive de-bottlenecking project at Collahuasi will
be undertaken this year.
The new Chilean mining tax was paid with effect from January 2006.
Nickel, Niobium and Mineral Sands Divisions 2006 2005
Operating profit ($m) 405 249
Attributable nickel production (tonnes) 26,400 26,500
Production of 16,600 tonnes at Loma de Niquel was marginally down for the year.
Codemin output rose to 9,800 tonnes (2005: 9,600 tonnes), but sales volumes
were 11% higher owing to the timing of shipments. In the first full year of
production following the completion of the scalping project, niobium output
increased a further 18% to a record 4,700 tonnes. Namakwa Sands` zircon and
rutile production was very similar to 2005 at 128,400 tonnes and 28,200 tonnes
respectively, while slag tonnage, which had been at similar levels until a
major furnace burn-out occurred in August, was 19% lower at 133,900 tonnes.
In December the $1.2 billion Barro Alto project, which will see the
construction of a 36,000 tonnes per annum ferronickel operation in Brazil, was
approved. First production is scheduled for 2010.
Zinc Division 2006 2005
Operating profit ($m) 516 102
Attributable zinc production (tonnes) 334,700 324,200
Attributable lead production (tonnes) 71,400 63,000
Skorpion operated at design capacity until August when impurities in the
electrowinning circuit caused a hydrogen fire, necessitating a 20 day shutdown.
Although operations were again running at design capacity by December,
production for the year eased to 129,900 tonnes (2005: 132,800 tonnes).
Increased production from secondary mining (released by the backfill
programme), improved grades (arising from the start-up of mining in the Bog
Zone) and improved mill throughput and recoveries resulted in Lisheen producing
170,700 tonnes of zinc and 23,100 tonnes of lead (2005: 159,300 tonnes and
20,800 tonnes, respectively).
At Black Mountain the commissioning at the Deeps shaft and the phased
redeployment from the Broken Hill and Swartberg orebodies to, and the opening
up of, the Deeps orebody has led to a gradual improvement in grade. This,
together with a modest improvement in mill throughput, saw an increase of 6% in
zinc production and 14% in lead output to 34,100 tonnes and 48,300 tonnes,
respectively.
In January 2007 it was announced that black economic empowerment company Exxaro
Resources Limited had exercised an option under which it had, subject to the
satisfaction of conditions precedent and contractual price adjustments, agreed
to acquire Namakwa Sands (for R2.0 billion) and 26% of each of Black Mountain
and Gamsberg (for a combined figure of R180 million).
Anglo Base Metals continues to focus on operational excellence and delivering
on the value- additive growth options that it is creating. Increases in zinc
and ferroniobium production are forecast in 2007 while nickel output should be
maintained. Copper production, excluding Collahuasi, is forecast to increase
modestly. Collahuasi had forecast a rise in production of some 5%, but the
taking down of a SAG mill for 65 days to replace its stator motor (which is
covered by insurance) will result in an attributable shortfall of approximately
13,000 tonnes and a level of production in line with 2006.
Outlook
After four consecutive years of particularly strong growth in the world
economy, the current consensus is one of slightly lower growth in 2007 without
undue pressure on inflation rates and thus the level of interest rates.
Although fundamentals will continue to be positive and overall stock levels
below `normal`, both the zinc and the copper markets are likely to see some
stock build up as they move into a surplus in 2007, the extent of which
(particularly in copper) will depend on supply side disruptions. Nickel markets
will remain very tight in 2007, but nickel and zinc markets will see further
increases in supply in 2008. Fundamentals are therefore supportive, but suggest
an easing of prices. The full extent of any price moves and the pace of such
change will be dictated by fluctuations in speculative and investment funds
sentiment in what is likely to be a volatile pricing environment.
FERROUS METALS AND INDUSTRIES
$ million Year ended Year ended
31 Dec 2006 31 Dec 2005
Operating profit 1,360 1,456
Kumba 778 568
Highveld Steel 230 436
Scaw Metals 160 121
Samancor Group 52 144
Tongaat-Hulett 154 131
Boart Longyear - 67
Other (14) (11)
EBITDA 1,560 1,779
Net operating assets 2,796 4,439
Capital expenditure (including biological
assets) 582 373
Share of Group operating profit 14% 23%
Share of Group net operating assets 10% 12%
Ferrous Metals and Industries` operating profit declined by 7% to $1,360
million (2005: $1,456 million), mainly as a result of the sale of non-core
businesses that contributed $94 million in 2005, as well as lower vanadium and
manganese prices, partially offset by higher iron ore prices.
Markets
World crude steel production increased by 9% in 2006, to reach a total of 1.2
billion tonnes. China accounted for most of the increase, with its share of
global output rising to 34% in 2006. The South African steel market was
characterised by strong demand, attributable to numerous major projects, among
them infrastructural preparations for the 2010 Soccer World Cup, as well as
expansion by utilities and the mining and chemical industries.
Operating performance
Kumba achieved an operating profit of $778 million (2005: $568 million). Global
iron ore demand remained strong in 2006, fuelled by the continuing expansion of
the steel industry in China. In addition to the 71.5% annual iron ore price
increase achieved in April 2005, an annual increase of 19% was achieved with
effect from April 2006. Export sales volumes for the period grew in line with
production improvements. Kumba Iron Ore produced a record 31 million tonnes of
iron ore for the period, exporting 21 million tonnes. A $754 million,
three-year expansion programme is currently under way at the Sishen mine which
will increase sales volumes by 40% to 45 million tonnes per annum. Ramp-up will
commence in 2007, with full production expected in early 2009.
Scaw produced a record operating profit of $160 million (2005: $121 million).
The acquisition in February of AltaSteel, a manufacturer of steel and
value-added steel products in Canada, together with the acquisition of the
remaining 50% of Moly-Cop Canada, contributed $32 million for the year. Strong
demand for rolled, cast and wire rod products contributed to higher profits.
The international grinding media operations achieved higher sales volumes,
although this benefit was more than offset by negative exchange rate movements.
Anglo American`s attributable share of Samancor`s operating profit was $52
million (2005: $144 million). The 2005 operating profit included a $16 million
contribution from Samancor`s chrome business, which was disposed of in June
2005. Although higher manganese ore sales volumes were achieved, lower alloy
volumes and lower selling prices negatively impacted profits. In 2006, the
average manganese ore price achieved was $2.2 per metric tonne unit (mtu),
compared with the 2005 average price of $2.9/mtu.
Highveld reported a lower operating profit of $230 million (2005: $436
million), although this performance was still the second best in its history.
An increased contribution from the steel business, driven by strong South
African steel demand, was more than counteracted by the easing of vanadium
prices from the record levels achieved in 2005. In 2006, the average
ferrovanadium price achieved was $39 per kilogram of vanadium (kgV) compared
with the 2005 average of $66/kgV.
Tongaat-Hulett`s operating profit grew to $154 million (2005: $131 million).
The sugar operations benefited from a higher world sugar price of 12.8 USc/lb
in 2006, compared with 9.0 USc/lb in 2005, while the 2006 South African sugar
crop was the second lowest in 10 years. Hulamin continued its progress in
increasing sales volumes, with record rolled product sales of 183,000 tonnes
(2005: 173,000 tonnes). African Products` margins were affected by pricing
pressures on starch and glucose and increasing maize input costs. Moreland
benefited from increased contributions from its commercial, industrial and
resorts property development portfolios.
Strategic review
Further progress was made on optimising the division`s asset base during the
year.
In July, Anglo American announced the sale of its 79% shareholding in Highveld
Steel to Evraz, an international steel producer, and Credit Suisse, for an
aggregate consideration of $678 million. Following the disposal of the initial
49.8%, for which Anglo American received $412 million, Evraz has an option to
acquire Anglo American`s remaining 29.2% stake in Highveld Steel for $266
million once regulatory approvals are received. This amount will be reduced by
any dividends paid by Highveld Steel prior to Anglo American selling its
remaining shares. The deal represents a substantial foreign direct investment
in South Africa.
In November the Kumba empowerment transaction was completed. This resulted in
the listings on the Johannesburg Stock Exchange of Kumba Iron Ore, as a pure
play iron ore company in which Anglo American holds 64%, and Exxaro, which
became South Africa`s largest black economic empowered natural resources
company.
In December the Tongaat-Hulett Group announced the proposed unbundling and
listing of Hulamin and simultaneous introduction of broad based black economic
empowerment into both companies. This transaction, which is anticipated to be
completed by mid 2007, will result in broad based black economic empowerment
groups acquiring 25% and 15% interests in Tongaat- Hulett and Hulamin,
respectively. Anglo American`s shareholding in Tongaat-Hulett will reduce from
50% to 38% and its shareholding in Hulamin from an effective 45% to 39%.
In line with Anglo American`s objective of consolidating its agri-processing
businesses within Tongaat-Hulett, it was announced in December that
Tongaat-Hulett had acquired Anglo American`s 50% shareholding in the Zimbabwe
Stock Exchange listed sugar producer, Hippo Valley Estates, for $36 million.
Outlook
Scaw`s volumes in the South African market are expected to grow, driven by
infrastructural expansion and construction and mining industry activity. Demand
for Scaw`s products internationally is forecast to remain strong, driven by
mining demand in Latin America and buoyant economic growth in Alberta, Canada.
Samancor should benefit from volume improvements and higher prices. Highveld`s
performance in 2007 should be similar to that of 2006, depending largely on
vanadium prices and continued strength in the South African steel demand.
Tongaat-Hulett is expected to benefit from higher sugar production and sales
revenue, while Hulamin plans to continue to grow its rolled product volumes and
optimise its sales mix.
Global economic growth looks set to continue in 2007, albeit at a slightly
softer pace, with global steel output forecast to rise by over 6% in 2007. The
outlook for the division remains broadly positive, given the benchmark annual
iron ore price increase of 9.5% effective 1 April 2007 and a stable rand.
Earnings in 2007 will be influenced by the timing of the sale of Anglo
American`s remaining Highveld stake and the transaction unbundling the
Tongaat-Hulett aluminium business.
COAL
$ million Year ended Year ended
31 Dec 2006 31 Dec 2005
Operating profit 864 1,019
South Africa 380 470
Australia 279 323
South America 227 240
Projects and corporate (22) (14)
EBITDA 1,082 1,243
Net operating assets 2,862 2,244
Capital expenditure 780 331
Share of Group operating profit 9% 16%
Share of Group net operating assets 10% 6%
Anglo Coal`s operating profit decreased by 15% to $864 million. Coal production
and sales for the first half of the year were adversely affected by a
combination of poor weather in South Africa and rail and port constraints in
Australia. In the second half production and sales volumes recovered and were
markedly higher. Nevertheless for the year, operating profit was lower due to
an overall decline in export volumes and a pull back in export prices from the
very high levels of the year before. South Africa, Australia and South America
contributed 44%, 32% and 26% respectively, to operating profit.
Markets
Global demand and supply for thermal coal remained well balanced during 2006.
The dampening effect of mild winter temperatures in Europe and the US was
mitigated by a series of worldwide logistical and production constraints and a
buoyant European energy market, bolstered by high oil and gas prices. The
combination of these factors maintained thermal coal prices at historically
high levels. Metallurgical coal prices softened in 2006 from the highs of 2005,
particularly the semi soft coking and pulverised injection (PCI) coals.
During 2006 geopolitical events demonstrated coal`s strategic importance to the
overall energy mix. Compared to oil and gas, coal`s security of supply from
widely distributed reserves makes it one of the world`s most reliable energy
sources. This together with the development and implementation of clean coal
technologies will, over time, position coal to make a significant contribution
towards satisfying future global energy demand while addressing environmental
concerns.
Operating performance
Operating profit for South African sourced coal, at $380 million, was 19% lower
than the previous year`s $470 million, reflecting average realised export
prices which were 6% lower in 2006 and a 1% decline in export sales volumes.
The rand continued to weaken in 2006, with a positive impact on operating
profit of $28 million.
Production for the year increased by 2.5 million tonnes, or 4.3%, to 59.3
million tonnes, as Isibonelo went into full production and output from Landau
and New Denmark grew. Landau benefited from improved yields arising from plant
efficiency improvements and favourable contractor performance, whilst New
Denmark benefited from strong longwall performance. Excessive rainfall during
the first quarter hampered production at several operations in particular New
Vaal and Kleinkopje.
Total sales, bolstered by Isibonelo, reached 59.3 million tonnes, 4.5% higher
than prior year. Export sales decreased by 0.2 million tonnes or 1%. Sales to
Eskom rose by 2.5% as increased economic activity continued to spur electricity
demand.
Operating profit for the Australian operations reduced by 14% to $279 million
(although the 2005 results included $27 million from insurance proceeds
pertaining to a roof fall at Moranbah North the previous year). The decline in
operating profit was chiefly on account of lower production volumes arising
from the cessation of mining at Dartbrook owing to difficult geological
conditions, combined with commissioning delays to the Grasstree longwall
operation. These reductions were partly compensated by the staged expansion at
Dawson, resulting in an overall reduction of 0.9 million tonnes for Anglo Coal
Australia. Site costs rose, with industry inflation statistics reporting 11.7%
increases year on year on the back of rising prices of commodities globally and
often poor local availability of scarce resources. Other cost increases came
with the expanding Dawson mine and the purchase of third party coal during the
Grasstree transition phase at Capcoal. Port and rail constraints impeded final
sales volumes and resulted in higher closing stock on hand at all export mine
sites.
Callide`s output increased by 0.3 million tonnes to 9.8 million tonnes. Dawson
mine received additional heavy mining equipment as part of its incremental
expansion and increased production by 11%, with the coking coal proportion of
its coal mix rising to 45% from 30% in 2005. Drayton maintained output,
although port constraints resulted in the mine being stock bound at year end.
During the year Capcoal moved its main underground operations to the Grasstree
mine, which experienced delays owing to conveyor and longwall commissioning
problems, resulting in an 11% reduction in production. In 2006 work got under
way on the Lake Lindsay project, which will extend open cut mining from the
Capcoal operation. Moranbah North`s production was 0.5 million tonnes lower,
primarily as a result of difficult geological challenges being experienced
during the first half of 2006.
In South America, operating profit was 5% lower than 2005 at $227 million
following a decline in export selling prices, higher operating costs,
particularly in respect of fuel prices, and a stronger Colombian peso. The
decrease in operating profit was partly offset by an increase in production at
Cerrejon of 9% to 28.4 million tonnes as the first expansion project was
completed. Sales volumes at Carbones del Guasare in Venezuela were marginally
below 2005 because of transportation difficulties between the mine and the
port.
In Australia, capital expenditure for the year was 190% higher at $537 million,
principally attributable to the ramp-up of the $426 million Dawson and $361
million Lake Lindsay projects. Dawson is expected to reach full production of
5.7 million tonnes per annum in 2007. Lake Lindsay is proceeding to plan, with
first coal scheduled for 2008.
In South Africa, the start of work at the $132 million Mafube mine, wash plant
enhancements at Goedehoop and completion of the Isibonelo mine represent the
majority of the capital expenditure. Mafube will increase Anglo Coal`s thermal
coal production by 5 million tonnes per annum. The coal projects which have
been identified as part of Project Eureka will continue to enhance Anglo Coal`s
participation in the South African coal sector.
In South America the expansion of Cerrejon to 32 million tonnes per annum is
continuing and full production is scheduled for 2008. A pre-feasibility study
is investigating additional capacity beyond 32 million tonnes per annum.
Outlook
The rand exchange rates and coal prices will continue to be the two main
variables in 2007, with export prices expected to be more stable in 2007,
though with a somewhat softer bias.
Thermal coal prices for 2007 will continue to be subject to volatility,
resulting from anticipated growth in India and the Asian economies, increased
incremental supply from major producing regions, unpredictable fluctuations in
seasonal temperatures and the price of competing energy fuels. Hard coking coal
prices have decreased by up to 20% for 2007 contracts beginning in April.
Early negotiations in thermal coal are showing that the market is remaining
strong, with similar prices set to be realised in 2007.
Substantial capital will continue to be invested in all regions, with
accompanying increases in production, particularly in South Africa and
Australia.
In November 2006, Anglo Coal, Hillsborough Resources and North Energy Mining
Incorporated created Peace River Coal, of which Anglo Coal owns 60%. Peace
River Coal is a metallurgical coal mine in Canada that is expected to produce
around 2.0 mt in 2007.
The agreement between Anglo Coal and Shell with respect to the joint
development of Monash Energy (coal-to-liquids projects) advances and the
conclusion of the concept study is anticipated in 2007.
In February 2007, Anglo Coal announced the creation of Anglo Inyosi Coal, an
empowered coal company housing key current and future domestic and export
focused coal operations. Anglo Coal has signed a Heads of Agreement with
Inyosi, a newly formed broad based black economic empowerment company. Inyosi
will acquire 27% of Anglo Inyosi Coal, creating a company valued at R7 billion
and incorporating several key Anglo Coal assets, namely Kriel Colliery an
existing mine, and Elders, Zondagsfontein, New Largo and Heidelberg projects.
INDUSTRIAL MINERALS
$ million Year ended Year ended
31 Dec 2006 31 Dec 2005
Operating profit 336 370
Tarmac 315 340
Copebras 21 30
EBITDA 580 618
Net operating assets 4,524 3,982
Capital expenditure 298 274
Share of Group operating profit 3% 6%
Share of Group net operating assets 16% 11%
Anglo Industrial Minerals generated an operating profit of $336 million. Tarmac
Group`s operating profit was 7% lower than 2005 at $315 million. The UK profit
was down 10%, considered a robust performance in the face of challenging market
conditions, with lower volumes and weaker margins in some businesses
exacerbated by high energy costs for much of the year. Input cost pressures
were partly mitigated by cost savings of some $63 million as a result of
operational efficiencies, including Tarmac`s ongoing supply chain management
programme.
Markets and operating performance
Tarmac`s contribution from its international businesses increased by 5%,
reflecting strong performances by the Middle East and improvements by Poland
and Germany, offset by weaker demand in Spain. Copebras` operating profit
was down 30% from the prior year owing to the combined effects of the 11%
strengthening of the Brazilian real against the US dollar and weak demand from
the agricultural sector.
In 2006 Tarmac completed its operational, commercial and organisational
restructuring. The new business structure facilitates continuous improvement
both operationally and commercially. The scope of its activities are also now
clearly defined as aggregates, together with the three routes to market
(asphalt, concrete and concrete products), and integration of cement where
appropriate. This strengthens Tarmac`s ability to improve its results and grow.
A special charge for impairment and restructuring costs of $278 million was
taken. This related to businesses sold ($46 million), businesses retained and
restructured ($212 million) and closure and other items ($20 million).
In addition to bolt-on acquisitions in France, the Czech Republic and Poland,
Tarmac successfully entered Turkey and acquired a developing business in
Romania, involving interests in quarries and ready mixed concrete. These
acquisitions enhance Tarmac`s ability to develop its business in Central and
eastern Europe, identified as a key focus of the company`s growth strategy.
2006 saw increased focus on improving the profitability of underperforming
businesses and on disposing of `non-core` businesses including the UK based
Minerals and Materials business and the underperforming TopPave business.
Previously announced disposals of assets in Hong Kong and Germany were
completed in the second half of the year.
Tarmac`s operating profit in the UK declined owing largely to general market
weakness, which caused demand to fall, and to high and volatile energy related
costs for much of the year. The Aggregate Products business was impacted by
weak demand and a highly competitive marketplace, with demand for coated stone
being 8% down on the previous year.
During 2006, additional resources were directed at improving commercial and
operational processes in Aggregate Products, and early results are encouraging.
Work has started on Tarmac`s largest ever contract, resurfacing England`s M1
motorway - an example of new, long term, framework agreements that now prevail
in the marketplace.
Tarmac`s Building Products and International businesses experienced improved
results compared with the previous year. However this gain was offset by weak
demand for aggregate products, particularly in the road and housing sectors.
Despite a substantial decline in demand from the housing sector for blocks,
underlying profits in Building Products were 23% better than 2005. This
reflects the benefits of operational improvements in the Topblock and Precast
businesses and the disposal of the underperforming TopPave business. The
Precast business also benefited from the work related to the construction
programme for the 2012 London Olympic games.
Operating profits for Tarmac International improved 5% over the previous year
owing to stronger markets in France and benefits accruing from acquisitions and
re-organisation and improved performance in Poland, the first full-year benefit
of the Shawkah quarry in the Middle East (one of the largest in the Tarmac
Group) and high demand in the Czech Republic and Germany. Profits in Spain were
lower, largely reflecting the impact of higher cement costs despite strong
demand in the Central Region.
Outlook
Market conditions in the UK are expected to remain challenging with weak demand
in some sectors and high cost pressures. The uncertainty of government spending
on infrastructure is also a cause for concern, as is the increasing impact of
different types of construction materials such as steel and timber on the
industry. Volatility of energy prices and the impact that they have on Tarmac`s
business in terms of cement and distribution costs will also continue to affect
performance and demand commensurate efforts to drive further efficiencies.
GOLD
$ million Year ended Year ended
31 Dec 2006(1) 31 Dec 2005
Operating profit 467 332
EBITDA 843 871
Net operating assets - 6,982
Capital expenditure 196 722
Group`s aggregate investment in AngloGold
Ashanti 1,623 -
Share of Group operating profit 5% 5%
Share of Group net operating assets - 20%
(1)The results for 2006 are reported as a subsidiary up to 20 April and
thereafter as an associate at 42% attributable (see note 3 to the financial
information). The Group`s share of AngloGold Ashanti`s net assets is disclosed.
Attributable operating profit in 2006 climbed to $467 million, 41% higher than
the figure for the previous year (2005: $332 million), mainly due to impact of
a stronger gold price, partially offset by the Group accounting for AngloGold
Ashanti as an associate from 20 April 2006. At the end of 2006 the gold price
($604 per ounce) was more than 36% higher than at the beginning of the year
($445 per ounce), while the average price received for the year was 31% higher
than the prior year. Total cash costs were $27 per ounce higher, at $308 per
ounce, mainly resulting from stronger operating currencies, inflation and lower
grades.
Markets
Investor interest in gold continued throughout 2006. The average gold price
received increased by $138 per ounce to $577. This momentum has continued into
2007, with the spot gold price currently well above the $600 per ounce mark.
Operating performance
In 2006, AngloGold Ashanti`s production from ongoing operations declined by 9%
to 5.64 million ounces and was largely attributable to reductions of 305,000
ounces in Tanzania, 122,000 ounces in South Africa and 88,000 ounces in Ghana.
These decreases were only partly compensated by small increases in output from
assets in Australia, Argentina and Mali.
The review of AngloGold Ashanti`s assets has resulted in management
implementing programmes to ensure that these operations better their ore
reserve, profit margin and growth potential.
During the year AngloGold Ashanti successfully raised $500 million of equity at
a negligible discount to the prevailing market price.
AngloGold Ashanti is focusing on growing the reserve and resource base, both
through exploration and through a disciplined, value adding mergers and
acquisitions programme.
In respect of both of these activities, the company is now looking outside of
the world`s mature gold regions and has exploration projects in Africa in the
Democratic Republic of Congo and in South America in Colombia. In Russia,
AngloGold Ashanti has announced the formation of a strategic alliance with
Polymetal. Strategic alliances are being pursued in China to allow the company
to successfully extract value from a region undergoing significant regulatory
change. Exploration partnerships in the Philippines, Laos and Mongolia have
resulted in land positions being acquired in several prospective areas.
Outlook
The gold price has now risen for six years in succession, which has not been
seen since the deregulation of the gold market in the developed markets in
1971. Ongoing strong demand from the growing economies of China and India as
well as continued investor speculation and official sector activities are seen
as being supportive of the gold price.
PAPER AND PACKAGING
$ million Year ended Year ended
31 Dec 2006 31 Dec 2005
Operating profit 477 495
Packaging 287 293
Business Paper 130 163
Other 60 39
EBITDA 923 916
Net operating assets 7,019 6,365
Capital expenditure (including biological
assets) 644 746
Share of Group operating profit 5% 8%
Share of Group net operating assets 25% 18%
In the second half of the year there was some improvement in overall market
conditions. Operating profit for the second half of 2006 at $265 million was up
on the comparable period for 2005. The second half performance partially offset
the impact of a poor first six months with full year profits of $477 million,
4% down on 2005. Although operating rates for Mondi`s European upstream paper
markets appear to have improved allowing for some price increases, input cost
pressures (fibre, chemicals and energy) and tough trading conditions in
downstream converting activities have continued to put margins under pressure.
In response Mondi has focused on cost saving and profit improvement initiatives
delivering $224 million of benefits for the full year.
Markets and operating performance
Mondi Packaging`s operating profit of $287 million was 2% below the previous
year`s $293 million, the strong upturn in packaging paper pricing was more than
offset by higher input costs and continued margin pressure in the converting
operations. Mondi has been active in restructuring its converting operations to
improve efficiencies and focus on high growth niche areas, with ten sites
divested and one closed during the year. In addition Mondi closed down two
corrugators amounting to 8% of its capacity. The results of these actions can
be seen in productivity, measured in output per employee which has improved by
9% across the business.
There were several small acquisitions in the period with Mondi further
strengthening its position in the higher growth niche release liner segment
through the acquisition of Akrosil (mainly US and European based), Schleipen
and Erkens and NBG Special Coatings (both European based). The acquisition of
Peterson Barriere in Norway adds to the extrusion coating segment. The
acquisition of the Bulgarian Kraft Paper Factory Stambolijski was finalised
during June. Agreement to dispose of Mondi`s stake in Bischof + Klein, an
associate company specialising in polymer films and flexible packaging, was
reached in December with completion expected during the first quarter of 2007.
Mondi is considering an investment in Poland or the Czech Republic in a new
paper machine to produce lightweight testliner and fluting. This is a market
which is growing rapidly and where there is a shortage of product in Eastern
Europe. The cost of this investment is estimated at $365 million and will
provide capacity of 470,000 tonnes with first production expected in the second
half of 2009.
Mondi Business Paper`s operating profit of $130 million was 20% down on the
$163 million recorded in 2005. Tough trading conditions contributed to the
decline in profits (particularly in the first half), and were compounded by the
slow start up at the Merebank South Africa operation, of the paper machine PM31
following a major rebuild, and expenses related to project development.
PM31 is now operating at a much improved run rate and is producing better
grades of paper. Further improvement is required which may include some
modifications to the machine in order that it can produce at its designed
potential. In addition the South African operation is undergoing a major
restructuring programme to improve efficiencies and lower costs. As a result of
this restructuring and the improvement in PM31 performance a better result is
expected in 2007 from the South Africa.
Within the rest of the business the non-integrated mills saw profitability
significantly eroded by rising pulp costs but both Syktyvkar and Ruzomberok
recorded strong results on the back of increased sales volumes and good cost
control.
In response to weak European market conditions Mondi took 110,000 tonnes at
annual production capacity out of the business papers market in 2006 by
irreversibly converting the Dunaujvaros mill in Hungary to a speciality paper
plant and selling the assets.
Overall product demand was positive with uncoated woodfree sales volumes up 10%
also helped by increased production from PM31. The increased demand has led to
improved operating rates and some improvement in pricing towards the end of the
year (an average price increase of 4% was announced across Mondi business
paper`s key paper grades in January 2007). However pricing is still well below
historic mid cycle levels and margins continue to be impacted by rising input
costs, particularly for fibre and energy.
Consideration is being given to a major modernisation programme for the Russian
operation which could see substantial investment over the next five years in
improving infrastructure, increasing capacity and reducing cost through
enhanced efficiencies. This capital expenditure programme includes some
elements that would have been part of the previously announced major pulp
expansion project (initial cost estimate of $1.5 billion) and will allow the
mill to be in a good position to reconsider this project once the modernisation
programme is complete.
Mondi Packaging South Africa had a better year with improved agricultural
packaging volumes and good cost control. Other operations which comprise the
Newsprint and Merchant activities as well as corporate costs saw net operating
profits well up on the comparable period. All major trading operations recorded
improved results with both newsprint operations performing well as a result of
an improved pricing environment.
Outlook
The company enjoyed a strong finish to 2006 which will provide a good platform
going into 2007 and whilst the trading environment has undoubtedly improved,
concerns remain about the strength of the recovery and the level of
overcapacity in some of the markets in which Mondi operates. Mondi is
encouraged by the number and scale of recent industry announcements regarding
capacity closures and this bodes well for the future. Overall, Mondi expects a
better financial performance in 2007, despite rising corporate costs (in
anticipation of the demerger from Anglo American plc), as a result of improved
pricing for its key products, focus on cost saving and the benefits of a better
PM31 performance.
Consolidated income statement
for the year ended 31 December 2006
Before Special
special items and
items and remeasurements
remeasurements (note 6)
US$ million Note 2006 2006
Group revenue 3 33,072 -
Total operating costs (24,330) (868)
Operating profit from
subsidiaries and
joint ventures 3 8,742 (868)
Net profit on disposals 6 - 1,168
Share of net income from
associates 3 582 103
Total profit from operations and
associates 3 9,324 403
Investment income 609 57
Interest expense (774) (57)
Net finance costs 7 (165) -
Profit before tax 9,159 403
Income tax (expense)/income 8 (2,763) 123
Profit for the financial year 6,396 526
Attributable to:
Minority interests 925 (189)
Equity shareholders of the
Company 4 5,471 715
Earnings per share (US$)
Basic 9
Diluted 9
Dividends
Proposed ordinary dividend
per share (US cents)
Proposed ordinary dividend
(US$ million)
Proposed special dividend
per share (US cents)
Proposed special dividend
(US$ million)
Dividends paid during the year
per share
(US cents)
Dividends paid during the year
(US$ million)
Before
special
items and
remeasurements
US$ million 2006 2005
Group revenue 33,072 29,434
Total operating costs (25,198) (24,090)
Operating profit from subsidiaries and
joint ventures 7,874 5,344
Net profit on disposals 1,168 -
Share of net income from associates 685 696
Total profit from operations and
associates 9,727 6,040
Investment income 666 498
Interest expense (831) (926)
Net finance costs (165) (428)
Profit before tax 9,562 5,612
Income tax (expense)/income (2,640) (1,283)
Profit for the financial year 6,922 4,329
Attributable to:
Minority interests 736 593
Equity shareholders of the Company 6,186 3,736
Earnings per share (US$)
Basic 4.21
Diluted 4.12
Dividends
Proposed ordinary dividend per share
(US cents) 75
Proposed ordinary dividend (US$ million) 1,107
Proposed special dividend per share
(US cents) -
Proposed special dividend (US$ million) -
Dividends paid during the year per share
(US cents) 195
Dividends paid during the year (US$ million) 2,839
Special
items and
remeasurements
(note 6)
US$ million 2005 2005
Group revenue - 29,434
Total operating costs (487) (24,577)
Operating profit from subsidiaries and
joint ventures (487) 4,857
Net profit on disposals 87 87
Share of net income from associates (39) 657
Total profit from operations and
associates (439) 5,601
Investment income 72 570
Interest expense (37) (963)
Net finance costs 35 (393)
Profit before tax (404) 5,208
Income tax (expense)/income 8 (1,275)
Profit for the financial year (396) 3,933
Attributable to:
Minority interests (181) 412
Equity shareholders of the Company (215) 3,521
Earnings per share (US$)
Basic 2.43
Diluted 2.36
Dividends
Proposed ordinary dividend per share
(US cents) 62
Proposed ordinary dividend (US$ million) 903
Proposed special dividend per share
(US cents) 33
Proposed special dividend (US$ million) 480
Dividends paid during the year per share
(US cents) 79
Dividends paid during the year (US$ million) 1,137
Underlying earnings and underlying earnings per share are set out in note 9.
Consolidated balance sheet
as at 31 December 2006
US$ million Note 2006 2005
Intangible assets 2,134 2,572
Tangible assets 23,498 30,796
Biological assets 324 350
Environmental rehabilitation trusts 197 288
Investments in associates 4,780 3,165
Financial asset investments 1,973 899
Deferred tax assets 372 337
Other financial assets (derivatives) - 183
Other non-current assets 173 153
Total non-current assets 33,451 38,743
Inventories 2,974 3,569
Trade and other receivables 5,312 5,174
Current tax assets 225 211
Current financial asset investments - 16
Other current financial assets (derivatives) 329 747
Cash and cash equivalents 13 3,004 3,430
Total current assets 11,844 13,147
Assets classified as held for sale 11 1,188 -
Total assets 46,483 51,890
Short term borrowings 13 (2,028) (2,076)
Trade and other payables (5,040) (5,024)
Short term provisions (62) (19)
Current tax liabilities (1,453) (1,145)
Other current financial liabilities
(derivatives) (216) (1,286)
Total current liabilities (8,799) (9,550)
Medium and long term borrowings 13 (4,220) (6,363)
Retirement benefit obligations (775) (1,258)
Other financial liabilities (derivatives) (304) (508)
Deferred tax liabilities (3,687) (5,201)
Provisions (1,024) (1,432)
Total non-current liabilities (10,010) (14,762)
Liabilities directly associated with assets
classified as held for sale 11 (547) -
Total liabilities (19,356) (24,312)
Net assets 27,127 27,578
Equity
Called-up share capital 12 771 747
Share premium account 12 2,713 1,637
Other reserves 12 1,049 1,330
Retained earnings 12 19,738 19,907
Equity attributable to equity shareholders of
the Company 24,271 23,621
Minority interests 12 2,856 3,957
Total equity 27,127 27,578
The financial statements were approved by the Board of directors on 20 February
2007.
Tony Trahar Rene Medori
Chief executive Finance director
Consolidated cash flow statement
for the year ended 31 December 2006
US$ million Note 2006 2005
Cash inflows from operations 13 10,057 7,265
Dividends from associates 276 461
Dividends from financial asset investments 12 9
Income tax paid (2,035) (954)
Net cash inflows from operating activities 8,310 6,781
Cash flows from investing activities
Acquisition of subsidiaries, net of cash and
cash
equivalents acquired 15 (286) (298)
Investment in associates (11) (29)
Investment in joint ventures (7) -
Purchase of tangible ass
