Not only did Anglo American (LON:AAL) have to deal with relatively low commodity prices last year, the company was also under threat of takeover/merger from Xstrata. Anglo rebuffed the approach and to justify going it alone to stockholders the miner has had to move to cut costs itself and to focus the group on shareholder value. The changes have been made.
To take organisational change as an example, the group will now put the headquarters for particular metal groups in the areas of production. Thus copper will be run from Chile and Metallurgical coal from Australia. Previously these metal groups had been headquartered in the UK. Corporate headcount has also been reduced by 25%.
On the divestment front, $400m of sales have been agreed so far in 2010 which includes the leading supplier of building materials the Tarmac group. This compares to divestments in 2009 of $2.4bn as this included gold producer AngloGold Ashanti. The rational for the sale of AngloGold was that it would achieve a higher stock market value as a separate entity.
On the overheads front over 2009 cost reductions across the group came in at 5% with a total reduction in headcount of 23,400. Asset optimisation targets for operating profit improvements were beaten, as were targets for procurement cost savings.
However, no amount of internal changes can insulate a business from external conditions. This was evident in the 2009 results as the group was hit by falling commodity prices. Operating profit in 2008 was $10bn but this fell to $5bn in 2009 with price falls causing $4bn of this fall. Associate businesses also caused a reduction in profits of $1.5bn while inflation provided a further $0.5bn hit.
Set against this the factors the group can control appeared to perform well. Volume production increases boosted profits by $0.4bn while cash cost savings helped to the tune of an additional $0.5bn. As such the group does appear to have made the best of a difficult situation. We also like the fact that the miner is able to take on the chin a dramatic fall back in some commodity prices as its diversified production base ensures relatively resilient financials.
Looking forward the prospects for growth remain very strong for the group. Copper production is set to increase by a third by 2012 while the…
