Anglo American Profit Falls as Metal, Gem Prices Drop

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31 Jul 2009

Anglo American Plc, owner of stakes in the world’s biggest diamond and platinum producers, said first-half profit fell 31 percent as prices of the commodities tumbled to half the record levels reached last year.  Net income dropped to $2.97 billion from $4.28 billion a year earlier, the London-based company said today in a statement. So-called underlying earnings of 91 cents a share beat the median forecast of 67 cents a share in a Bloomberg survey of six analysts.  Chief Executive Officer Cynthia Carroll is cutting 19,000 jobs to help save $2 billion of costs by 2011, while fending off a $40 billion merger proposal from Xstrata Plc.  “The result is quite neutral,” Johann Pretorius, an analyst at Nedcor Securities in Johannesburg, said by phone from the city today. “What stands out is that there is almost no mention of Xstrata in the headlines.”  Anglo rose 0.6 percent to 1,917.5 pence as of 8:06 a.m. in London, extending this year’s gain to 24 percent and valuing the company at 25.3 billion pounds ($41.8 billion). Xstrata doubled in value and BHP Billiton Ltd., the world’s biggest mining company, rose 22 percent this year.
Anglo’s cost savings and efficiency program delivered $450 million of benefits in the first half and a further $550 million is expected in the second half, the company said. Anglo said new discoveries boosted copper resources by about 50 percent and its Minas-Rio iron-ore resource increased to 4.6 billion metric tons.
Xstrata Merger  Old Mutual Plc fund manager Anwaar Wagner and Sanlam Ltd. fund manager Barend Ritter have said they would only consider a merger with Xstrata that gives them a premium over Anglo’s share price. The Xstrata plan has “little financial or strategic merit,” Aviva Investors said June 24.
Anglo’s 80 percent-held Anglo Platinum Ltd. unit posted a 68 percent drop in net income to 2.66 billion rand ($341 million) this week. The company is the highest-cost of the top three platinum producers, with about a quarter of operations unprofitable, according to Abhishek Shukla, a Nomura International Plc analyst in London.
Carroll appointed Neville Nicolau as CEO of the platinum unit last year, partly to reduce the number of fatal accidents after 25 workers were killed in 2007. She also appointed Ian Cockerill as head of Anglo Coal and Chris Griffith as chief of Kumba Iron Ore Ltd. Kuseni Dlamini this year resigned as head of Anglo American South Africa, a year after being appointed.
Metals Strategy  Carroll, CEO since March 2007, extended a strategy begun in 2005 of focusing on commodities such as copper and iron-ore needed by the expanding economies of China and India. She sold Anglo’s remaining stake in AngloGold Ashanti Ltd., Africa’s biggest producer, and aluminum products maker Hulamin Ltd.
Kumba, 64 percent owned by Anglo, posted a 75 percent gain in first-half earnings on July 24 as prices rose. Anglo owns 45 percent of De Beers, the biggest diamond supplier, whose first- half sales increased 10 percent to $3.3 billion.
Founded by German-born Ernest Oppenheimer in 1917 as a gold company, Anglo diversified into diamonds, paper and beer to become South Africa’s biggest company during apartheid rule, before refocusing on mining again.

Source: Bloomberg