REG - Anglo American PLC - Anglo American results H1 2014 <Origin Href="QuoteRef">AAL.L</Origin> - Part 1
06/09/2014 20:35
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RNS Number : 2945N
Anglo American PLC
25 July 2014
25 July 2014
Anglo American Interim Results 2014 Continuing improvement in operating performance against backdrop of weaker commodity prices · Improved business performance, reflecting a greater focus on mining processes and costs, underpins turnaround strategy· Higher volumes across most of the portfolio, with cash costs down 2% in real terms· Headwinds of weaker commodity prices ($1.0 billion underlying operating profit impact) and the effects of the platinum strike ($385 million underlying operating
profit impact)· Group underlying operating profit(1) of $2.9 billion for the half year, a 10% decrease· Long term net debt target of $10 to $12 billion, supported by increased operating cash flows and divestment proceeds from refocusing of portfolio
Financial highlightsUS$ million, unless otherwise stated 6 months ended 30 June 2014 6 months ended 30 June 2013 Change
Underlying operating profit(1) 2,932 3,262 (10)%
Underlying earnings(2) 1,284 1,250 3%
Group revenue (incl. associates and JVs)(3) 16,144 16,193 -
Profit before tax(4) 2,945 1,994 48%
Profit for the financial period attributable to equity shareholders of the Company(4) 1,464 403 263%
Underlying earnings per share (US$)(2) 1.00 0.98 2%
Interim dividend per share (US$) 0.32 0.32 -
Attributable ROCE%(5) 10% 11%
Notes to the table are shown on the following page.
Mark Cutifani, Chief Executive of Anglo American, said: "Anglo American's
improved business performance, assisted by depreciating producer currencies,
partially offset the headwinds of input cost inflation, the effect of the
platinum strike and lower prices, primarily in bulk commodities. This
performance underlines the merits of our business strategy of commodity and
geographic diversification.
"Looking at our allocation of capital across the portfolio, we have resolved
to refocus on those assets that offer us the greatest source of potential
value - over the short and long term - and that best match our chosen areas of
focus and skills to drive returns. In Platinum, we have already outlined plans
to reposition the portfolio through the planned divestment of Rustenburg and
Union mines and our interest in the Pandora JV operation. We plan to divest a
number of other assets at the appropriate time and to redeploy that capital to
support our drive for higher returns. I expect our divestments and improved
business performance to support a long term net debt target of $10 to $12
billion.
"Our Driving Value programme is delivering improved operational performance,
reflecting a greater focus on mining processes and costs. Across the
portfolio, production volumes were up, with the notable exception of Platinum.
At Sishen, where the recovery plan is being implemented, we have seen improved
mining and production volumes of 5% and expect a further increase in waste
volumes in the second half. In our Copper business, the 12% increase in
production also demonstrates the benefits of greater mine efficiency and
throughput gains.
"I can also report that we are on track to ship first iron ore from our
Minas-Rio project in Brazil by the end of this year. At the end of June, we
had completed 95% of the project required to achieve this objective. We are
commissioning all areas of the operation and expect to complete within the
budgeted total capital cost of $8.8 billion."
Mark Cutifani, added: "Safety is the clearest indicator of how we are managing
the business and is always my first priority. We recorded the first quarter of
2014 with no loss of life and this positive trend in safety performance is
continuing, with the key indicators all showing improvement. Our total
recordable case frequency rate of 0.74 is a 31% improvement compared to FY
2013 and the lowest level ever achieved by Anglo American, while recognising
that the Platinum strike did contribute to some of the safety improvements. We
have made progress but it is unacceptable that three of our people have lost
their lives in the first six months of this year and that others suffered
injury. We are focused on five key areas which are characteristic of effective
and sustainable safety management: leadership, planning, risk management,
incident management and effective frontline supervision.
"The first six months of 2014 for the mining industry have seen ongoing soft
demand and declines in average realised prices for most of the commodities
Anglo American produces, compared to both the first half of 2013 and 2013 as a
whole, reflecting uncertainty surrounding global economic growth prospects in
the developed and developing economies.
"Looking at the operational improvements in more detail, we have started to
make good progress at our Copper business's two largest operations in Chile at
Los Bronces and Collahuasi, where mine planning improvements, stripping
volumes and process tonnages, as well as strong grades in H1, delivered a 12%
increase in copper production. At the constrained Sishen iron ore mine in
South Africa, a redesign of the pit and changes to core operating processes
are beginning to increase production. Kumba's Kolomela mine continues to
perform strongly, at above production design capacity, and serves to partially
offset the current challenges at Sishen. De Beers continued its upward
performance trajectory, increasing output by 12% driven by stronger production
performance and sales into rising demand. In Coal, we saw record first half
metallurgical coal production of 10.9 Mt, a 21% increase, having improved
underground longwall cutting hours at Grasstree by 60% and at Moranbah North
by 5%. These improvements helped to partially offset the sharply lower price
environment.
"As we look at the global economic outlook, uncertainty is likely to persist
for the balance of 2014, though there are some encouraging signs that activity
is strengthening in our key markets. Our diversified portfolio positions us
well for the potential significant further urbanisation and industrialisation
required to support growth in China and other emerging economies, while an
expanding middle class is expected to support a rising intensity of
consumption for our late cycle products. Over the long term, we expect new
supply to be constrained and to see tightening market fundamentals and a
recovery in price performance."
Notes to the table on page 1
(1) Underlying operating profit is presented before special items and
remeasurements and includes the Group's attributable share of associates' and
joint ventures' operating profit before special items and remeasurements - see
notes 4 and 5 to the Condensed financial statements. For the definition of
special items and remeasurements, see note 6 to the Condensed financial
statements.
(2) See note 10 to the Condensed financial statements for basis of
calculation of underlying earnings.
(3) Includes the Group's attributable share of associates' and joint ventures'
revenue of $1,923 million (H1 2013: $1,788 million). See note 4 to the
Condensed financial statements.
(4) Stated after special items and remeasurements. See note 6 to the
Condensed financial statements. For the six months ended 30 June 2014, special
items and remeasurements, including the attributable share of associates and
joint ventures, and after tax and non-controlling interests, amounted to a
gain of $180 million (H1 2013: loss of $847 million).
(5) Attributable ROCE is based on underlying performance and reflects the
realised prices and foreign exchange during the period, and is in line with
commitments made as part of the Driving Value initiatives. Where ROCE relates
to a period of less than one year, the return for the period has been
annualised (with the exception of De Beers - see footnote on page 25).
Financial review of Group results for the six months ended 30 June 2014
Anglo American's underlying earnings for the first half of 2014 were $1.3
billion, 3% higher than for the same period in 2013, with an underlying
operating profit of $2.9 billion, a 10% decrease from $3.3 billion. Continuing
weak global economic growth, coupled with increases in seaborne commodity
supply, led to a further decline in many commodity prices. The lower price
environment and platinum strike impact more than offset currency gains and
improved business performance.
Generally lower realised prices of commodities resulted in a reduction of $1.0
billion in underlying operating profit. The lower prices included a 23%
decrease in achieved Australian export metallurgical coal prices, a 17%
decrease in achieved iron ore prices at Kumba and a 3% decrease in realised
copper prices. Despite a decrease in unit costs at Copper and De Beers, driven
by increased production and at Coal Australia and Canada, due to improved
operating efficiencies leading to higher production, costs elsewhere were
affected by cost pressures and higher waste-stripping.
The decrease in underlying operating profit was partly offset by the weakening
of producer currencies ($0.8 billion) and improved operational performance.
Production increases were delivered at the Coal, Iron Ore, Copper, De Beers,
and Nickel businesses. Other businesses were impacted by a number of events,
including strikes and inclement weather.
Attributable ROCE was 10% versus 11% in the same period in the prior year.
This was a consequence of lower operating profit coming from Kumba Iron Ore,
Anglo American Platinum and Coal Australia and Canada. Average attributable
capital employed increased from $39 billion at 30 June 2013 to $41 billion at
30 June 2014, primarily due to increased capital expenditure during the 12
month period.
Underlying operating profit/(loss)
US$ million 6 monthsended30 June 2014 6 months
ended30 June 2013
Iron Ore and Manganese 1,229 1,653
Coal(1) 260 345
Copper 760 635
Nickel 26 (11)
Niobium(1) 34 42
Phosphates(1) 9 48
Platinum (1) 187
De Beers 765 571
Corporate and other(1) (150) (208)
2,932 3,262
(1) Refer to note 4 in the Condensed financial statements for changes in
reporting segments. Comparatives have been reclassified to align with current
year presentation.
Iron Ore and Manganese recorded an underlying operating profit of $1,229
million, 26% lower than the corresponding period in 2013. This was driven by a
17% decrease in achieved iron ore prices at Kumba and higher costs, due to the
ramp-up in waste volumes and cost pressures. Samancor also contributed to the
fall in underlying operating profit, with a decrease in realised prices.
Production of iron ore increased by 5% to 22.8 Mt. Kolomela is performing
above production design capacity and the execution of the recovery plan at
Sishen is under way. Manganese ore production decreased by 6% to 1.6 Mt, while
manganese alloy production increased 5% to 137,300 tonnes.
Coal delivered an underlying operating profit of $260 million, a 25% decrease
on the first half of 2013. This was primarily due to the impact of lower
realised export prices and a decrease in self-insurance recovery amounts by
$23 million. This was compensated for in part by strong cost management at
Coal Australia and Canada, resulting in a 4% decrease in unit cash costs at
the Australian export operations and a $22 million profit on sale of reserves
in South Africa.
Total production of coal increased by 3% to 48.5 Mt. Record export
metallurgical coal production of 10.9 Mt was driven by productivity
improvements at both the open-cut and underground operations. A focus on
high-margin products resulted in a favourable product mix towards
higher-quality coking coal. Export thermal coal production from South Africa
increased by 6% through productivity improvements. Production at Cerrejón
increased by 29%, primarily due to the strike impact in Q1 2013.
Copper recorded an underlying operating profit of $760 million, 20% higher
than for the first half of 2013, due to a 15% increase in sales volumes and
lower unit costs of production, offset by a 3% decline in the average realised
copper price. The increase in sales volumes was driven by higher production,
which increased by 12% to 396,400 tonnes. This was driven by improved
performance at Los Bronces and Collahuasi, the result of continued improvement
in throughput and higher grades, as well as by higher recoveries at Los
Bronces. Production is expected to decline in H2 2014, as forecast, due to
lower grades at Los Bronces and Collahuasi.
Nickel reported an underlying operating profit of $26 million, a $37 million
improvement, due to a $26 million favourable exchange-rate gain on Loma de
Níquel as well as improved cash costs at Codemin and lower study-cost spend at
projects. Underlying operating profit from the Barro Alto project continues to
be capitalised as the asset is not yet in commercial production. Production
increased by 35% to 19,800 tonnes following improved operational stability at
Barro Alto.
Niobium's underlying operating profit decreased by 19% to $34 million, due to
lower sales prices, the effects of inflation and higher cash costs. Sales
volumes of 2,300 tonnes and production of 2,200 tonnes were both in line with
the first six months of 2013.
Phosphates' underlying operating profit decreased by 81% to $9 million, due to
softer sales prices and inflation, partially offset by the devaluation of the
Brazilian real. Fertiliser production decreased by 5% to 542,900 tonnes, as a
consequence of maintenance stoppages, throughput constraints and weather
induced power shortages.
Platinum's underlying operating loss was $1 million, compared to an underlying
operating profit of $187 million in the first half of 2013, as a result of the
five-month-long industrial action by the AMCU trade union at the Union,
Rustenburg and Amandelbult operations. Sales volumes were maintained at H1
2013 levels, as production was supplemented by sales from stock, which reduced
the impact of the prolonged strike on the financial results of the business.
Equivalent refined platinum production of 715,200 ounces decreased by 39%
owing to the impact of the industrial action. Refined platinum production of
855,800 ounces, however, was only 16% lower as pipeline stock was drawn down.
De Beers recorded an underlying operating profit of $765 million, an increase
of 34%. The increase was primarily due to solid demand across key markets,
resulting in strong revenue growth, together with favourable exchange rate
trends.
Production increased by 12% to 16.0 million carats following a strong
performance by Debswana and the South African operations. This rise in output
reflected improvements in productivity and the business's ability to cope with
adverse weather conditions, together with the recovery from the impacts in
2013 of the Jwaneng slope failure clean-up and Orapa's planned plant
maintenance.
Corporate and other's underlying operating loss was $150 million, a 28%
improvement on the same period last year, driven mainly by improved
performance from the Lafarge Tarmac joint venture.
Corporate costs considered to be directly value adding are allocated to each
business unit. Costs reported externally as Group corporate costs only
comprise costs associated with parental or direct shareholder related
activities.
Underlying Earnings
Group underlying earnings were $1,284 million, a 3% increase (H1 2013: $1,250
million).
30 June 2014
US$ million Underlying operating profit/(loss) Net finance costs and income tax expense Non-controlling interests Underlying earnings
Iron Ore and Manganese 1,229 (399) (387) 443
Coal(1) 260 (95) (4) 161
Copper 760 (274) (177) 309
Nickel 26 3 - 29
Niobium(1) 34 (11) - 23
Phosphates(1) 9 1 - 10
Platinum (1) (9) 9 (1)
De Beers 765 (200) (96) 469
Corporate and other(1) (150) (16) 7 (159)
2,932 (1,000) (648) 1,284
(1) Refer to note 4 in the Condensed financial statements for changes in
reporting segments.
Net finance costs
Net finance costs, before special items and remeasurements, excluding
associates and joint ventures, were $73 million (30 June 2013: $201 million).
Interest costs were lower primarily due to an increase in the amount of
interest capitalised, mainly at the Minas-Rio and Grosvenor projects.
Tax
The effective rate of tax before special items and remeasurements including
attributable share of associates' and joint ventures' tax was 31.5%. This was
lower than the equivalent effective rate of 32.7% in the six months ended 30
June 2013 due to the impact of various prior year adjustments. In future
periods it is expected that the effective tax rate will remain above the
United Kingdom corporate tax rate.
Reconciliation to profit for the period from underlying earningsUS$ million 6 months ended 30 June 2014 6 months ended30 June 2013
Underlying earnings 1,284 1,250
Operating special items (61) (410)
Operating remeasurements 179 (402)
Non-operating special items 19 (83)
Financing special items and remeasurements 45 (35)
Special items and remeasurements tax (4) 75
Non-controlling interests on special items and remeasurements (4) 45
Share of associates' and joint ventures' special items and remeasurements 6 (37)
Profit for the financial period attributable to equity shareholders of the Company 1,464 403
Underlying earnings per share (US$) 1.00 0.98
Special items and remeasurements
Operating special items of $61 million relate to restructuring costs,
principally in respect of organisational changes as part of the Driving Value
programme (H1 2013: $410 million principally relating to impairments at the
Isibonelo and Kleinkopje operations in Coal South Africa, and the remaining
reversal of the De Beers inventory uplifts relating to inventory which was
fair valued on acquisition and subsequently sold). Operating remeasurements
reflect net gains (H1 2013: losses) on derivatives, mainly related to capital
expenditure in Iron Ore Brazil.
The net non-operating special items gain of $19 million includes a $22 million
gain on the Atlatsa refinancing transaction in the Platinum segment and the
Kumba Envision Trust charge of $19 million (H1 2013:$26 million). Further
non-operating special items in H1 2013 included a loss of $46 million on the
revaluation of Amapá assets held for sale, a $55 million loss on the formation
of the Lafarge Tarmac joint venture, and a gain of $44 million on deferred
proceeds from the sale of undeveloped coal assets in Australia in 2010.
Financing special items and remeasurements reflect a net gain of $45 million
(H1 2013: net loss of $35 million) principally comprising gains on derivatives
relating to debt.
Special items and remeasurements tax amounts to a charge of $4 million (H1
2013: credit of $75 million). This comprises a tax charge on special items and
remeasurements of $82 million (H1 2013: tax credit of $241 million) and a tax
remeasurement credit of $78 million (H1 2013: charge of $166 million). Tax
remeasurements relate to foreign exchange impacts arising in US dollar
functional currency entities where tax calculations are generated based on
local currency financial information and hence deferred tax is susceptible to
currency fluctuations.
Capital expenditure
US$ million 6 months ended30 June 2014 6 months ended30 June 2013
Iron Ore and Manganese 1,312 877
Coal(1) 457 476
Copper 333 472
Nickel(2) (26) (18)
Niobium(1) 90 64
Phosphates(1) 18 8
Platinum 245 235
De Beers 320 255
Corporate and other(1) 15 28
2,764 2,397
(1)Refer to note 4 in the Condensed financial statements for changes in
reporting segments. Comparatives have been reclassified to align with current
year presentation.
(2) Cash capital expenditure for Nickel of $35 million (H1 2013: $19 million)
is offset by the capitalisation of $61 million (H1 2013: $37 million) of net
operating cash flows generated by Barro Alto which has not yet reached
commercial production.
Capital expenditure was $2,764 million, 15% higher than for the first half of
2013, driven by the Minas-Rio iron ore project, partially offset by lower
expenditure in Copper. Capital expenditure guidance for 2014 is between $6.5
billion and $7.0 billion, including $0.8 billion of deferred stripping capital
expenditure.
Cash flow
Net cash inflows from operating activities were $3,510 million (H1 2013:
$3,167 million), an increase of 11% despite the 8% decrease in underlying
EBITDA. This was primarily driven by a reduction in working capital investment
in 2014.
Inflows on working capital in the current period of $180 million (H1 2013:
outflows of $735 million) reflected $123 million inflow on inventories,
primarily due to release of stock at Platinum during the strike action in the
first half of 2014, as well as debtor decreases of $494 million, due to high
year end debtors at Kumba and Copper, following strong production performance
in the closing months on 2013, being received in the period.
Net cash used in investing activities of $2,753 million (H1 2013: $2,436
million) was primarily attributable to capital expenditure of $2,764 million
(H1 2013: $2,397 million).
Net cash used in financing activities was $39 million (H1 2013: $1,682
million). This included cash receipts on issuance of bonds of $3,165 million
offset by net repayments of borrowings of $1,517 million, dividend payments to
Company shareholders and non-controlling interests totalling $1,198 million,
as well as interest payments of $503 million.
Capital structure
Net debt (including related hedges) of $11,515 million was $863 million higher
than at 31 December 2013 and $1,759 million higher than at 30 June 2013. The
increase in net debt compared to full year 2013 was driven by capital
expenditure of $2,764 million, the payment of dividends of $696 million to
Company shareholders and $502 million to non-controlling interests, and
interest payments of $503 million. This was partially offset by cash from
operating activities of $3,510 million.
Following the issue of $3.5 billion of bonds in 2013, the Group issued further
bonds of $3.2 billion consisting of $1.0 billion through accessing the US bond
markets, $2.1 billion under the Euro Medium Term Note programme and $0.1
billion under the South African Domestic Medium Term Note programme during the
period.
Anglo American's objective is to maintain a strong investment grade rating,
which demands rigorous capital discipline. However, we recognise that over the
next year and a half we will have limited flexibility due to heavier capital
expenditure commitments as we complete the development of Minas-Rio, in
Brazil, and Grosvenor, in Australia, after which we expect capital expenditure
to be moderated. Anglo American is targeting a long term net debt level of $10
to $12 billion.
Liquidity and funding
Net debt at 30 June 2014 comprised $19,961 million of debt and derivative
liabilities, offset by $8,446 million of cash and cash equivalents. At 30 June
2014 the gearing level was 23.1%, compared with 22.2% at 31 December 2013. At
30 June 2014, the Group had undrawn committed bank facilities of $9.1
billion.
The Group's forecasts and projections, taking account of reasonably possible
changes in trading performance, indicate the Group's ability to operate within
the level of its current facilities for the foreseeable future.
Dividends
An interim dividend of 32 US cents per share (H1 2013: 32 US cents per share)
has been declared, in line with the Board's commitment to provide a base
dividend, which will be maintained or increased through the cycle.
The Board
On 1 January 2014, Dr Judy Dlamini joined the Board as a non-executive
director. Dr Dlamini is a successful businesswoman with longstanding public
company board experience across a range of geographies. On 24 April, Sir CK
Chow and David Challen retired from the Board, having served since 2008 and
2002 respectively. The effect of these changes is that since the appointment
of Sir John Parker as chairman in August 2009, there has been a 100% change in
the Company's non-executive directors.
In addition to the above appointment and retirements, Sir Philip Hampton was
appointed senior independent non-executive director in place of David Challen
on 24 April and, on the same date, Dr Byron Grote took over the chairmanship
of the Audit Committee from David Challen.
Related party transactions
Related party transactions are disclosed in note 16 to the Condensed financial
statements.
Principal risks and uncertainties
Anglo American is exposed to a variety of risks and uncertainties which may
have a financial, operational or reputational impact on the Group and which
may also have an impact on the achievement of social, economic and
environmental objectives.
The principal risks and uncertainties facing the Group at the year end were
set out in detail in the operating and financial review section of the Annual
Report 2013 (pages 46-53), and have not changed significantly since. Key
headline risks relate to the following:
· Commodity prices
· Liquidity risk
· Currency risk
· Inflation
· Safety and health
· Environment
· Political, legal and regulatory
· Operational performance and project delivery
· Event risk
· Employees
· Infrastructure
· Community relations
· Information and cyber security
The Group is exposed to changes in the economic environment, as with any other
business. Details of any key risks and uncertainties specific to the period
are covered in the operations review section.
The Annual Report 2013 is available on the Group's website
www.angloamerican.com.
Operations review for the six months ended 30 June 2014
In the operations review on the following pages, underlying operating profit
includes the attributable share of associates' and joint ventures' operating
profit and is before special items and remeasurements unless otherwise stated.
Capital expenditure relates to cash expenditure on property, plant and
equipment including cash flows on related derivatives.
IRON ORE AND MANGANESE
US$ million 6 months 6 months
(unless otherwise stated) ended 30 June 2014 ended
30 June 2013
Underlying operating profit 1,229 1,653
Kumba Iron Ore 1,182 1,596
Iron Ore Brazil (9) (12)
Samancor 99 116
Projects and corporate (43) (47)
Underlying EBITDA 1,381 1,787
Capital expenditure 1,312 877
Kumba Iron Ore 305 248
Iron Ore Brazil 1,007 629
Share of Group underlying operating profit 42% 51%
Attributable return on capital employed % 13% 22%
Kumba Iron Ore 80% 113%
Iron Ore Brazil (0)% (1)%
Samancor 23% 24%
113%
Iron Ore Brazil
(0)%
(1)%
Samancor
23%
24%
Underlying operating profit for Iron Ore and Manganese declined by 26% to
$1,229 million. This was attributable to softening average iron ore export
prices at Kumba, which were 17% weaker, and a marginal increase in operating
expenses, mainly as a result of higher mining volumes.
Markets(1)
Iron ore
At 30 June, global crude steel production had increased by 4% year on year to
819 Mt, (H1 2013: 790 Mt), with China's record H1 2014 production of 409 Mt(2)
being 5% higher (H1 2013: 389 Mt(2)). Following seasonal trends, Chinese steel
mills drew down their iron ore inventory in early 2014, and this served to
reduce apparent iron ore demand in the first half of the year. Global seaborne
iron ore supply increased to almost 700 Mt, driven by strong export growth of
25% from Australia, with a further 8% growth from Brazil. Chinese imports of
iron ore grew strongly and displaced some of the high cost domestic material.
Average prices (CFR China 62% Fe) were down 19% at $111/t (H1 2013: $137/t).
Prices have steadily declined from $134/t at the beginning of the year, with
the index price ending the first half of 2014 at $93/t.
Operating performance
6 months 6 months
ended ended
30 June 2014 30 June 2013
Attributable iron ore production (tonnes) 22,792,800 21,612,800
Kumba Iron Ore
At Sishen mine, iron ore production increased by 5% to total 17.0 Mt (H1 2013:
16.1 Mt), in line with the mining plan to ramp up production to 37 Mt by 2016.
Total tonnes mined increased by 5% to 107.2 Mt (H1 2013: 102.5 Mt), of which
waste mined made up 86.9 Mt (H1 2013: 82.1 Mt), an increase of 6%. Sishen's
pit continued to be mined according to the production recovery plan, although
excessive rainfall hampered waste pre-stripping operations. Waste mining plans
for the second half of the year were completed and are being executed, which
includes further ramp-up and fleet-efficiency improvements.
Key initiatives of the improved mining plan to achieve 37 Mt production in
2016 include:
· a focus on productivity through improved scheduling of work by
implementation of the Business Process Framework;
· the Dingleton project;
· construction of two new waste dumps; and
· the five year fleet plan and associated infrastructure.
The Dingleton project to facilitate the expansion of Sishen to the west has
commenced and construction of the houses, businesses, churches and schools is
underway.
Kolomela mine continued to perform strongly, producing 5.5 Mt, an increase of
4%. Total tonnes mined rose by 11% to 31.3 Mt (H1 2013: 28.2 Mt), of which
waste mined accounted for 24.4 Mt (H1 2013: 21.7 Mt), an increase of 12%.
Kumba's sales rose by 2% to 22.5 Mt (H1 2013: 22.1 Mt), mainly as a result of
a 39% increase in domestic sales volumes in line with the new supply agreement
with ArcelorMittal South Africa Limited. Export sales volumes were marginally
down at 19.7 Mt (H1 2013: 20.1 Mt). Finished product inventory held at the
mines and ports increased to 3.6 Mt from 2.9 Mt as at 31 December 2013 (H1
2013: 3.6 Mt).
Iron Ore Brazil
Iron Ore Brazil generated an underlying operating loss of $9 million (H1 2013:
loss of $12 million), largely reflecting the non-capitalised costs for the
construction of the Minas-Rio project.
Samancor
Underlying operating profit decreased by 15% to $99 million, this was driven
by lower prices, offset to some extent by higher sales volumes and a renewed
focus on cost control.
Production of manganese ore decreased by 6% to 1.6Mt (attributable basis) due
to a greater number of weather-related stoppages at GEMCO in Australia and
planned maintenance shutdowns in South Africa.
Production of manganese alloys increased by 5% to 137,300 tonnes (attributable
basis) owing to blend optimisation and other productivity improvements at
TEMCO in Australia.
Projects
Iron Ore Brazil
Construction continues at the 26.5 Mtpa Minas-Rio project, with significant
progress made towards delivering first ore on ship by the end of 2014. During
the first six months of 2014, key development milestones were achieved and
commissioning has commenced. At the beneficiation plant, first ore feed to the
primary crusher was achieved in May and ore to the mill in July, using the
fresh-water pumping system which was completed in May. The 529 km pipeline to
the port at Açu has been laid. Water pumping tests started in early June from
pumping station 2 to the port, and from pumping station 1 to pumping station 2
later in the month, following finalisation of all pressure and geometric tests
on the main line. At the port, construction is continuing as scheduled and
good progress has been made on the breakwater, with 26 of 33 caissons
installed for first ore on ship. Further progress continues to be made in
obtaining the outstanding licences required: the port operation licence was
granted in May and the licences for the mine/beneficiation plant and the
pipeline are expected for Q3. A temporary licence was issued for the power
transmission line, to be converted into a definitive one once the remaining
licences are obtained.
Project capital expenditure remains in line with the estimate provided in
January 2013 of $8.8 billion. $6.6 billion has been spent to date, with $1.2
billion expected over the second half of 2014. This would leave around $1
billion for remaining capital expenditure for 2015, including the full
extension of the breakwater, and mine equipment for the ramp up.
Legal
Kumba Iron Ore
There have been no significant changes to the legal matters reported on for
the year ended 31 December 2013. SIOC has not yet been awarded the 21.4%
Sishen mining right, for which it applied following the Constitutional Court
judgment on the matter in December 2013.
Outlook
Kumba Iron Ore
The production outlook for Sishen mine remains at around 35 Mt for 2014 as a
whole. The Sishen pit, however, remains constrained; therefore, the planned
waste ramp-up is continuing as part of the strategy to improve mining
flexibility over the longer term. It is expected that waste tonnages will
reach ~220 Mt for the year. At Kolomela, output remains at approximately 10
Mt, in line with production design capacity, with waste mined at 40-50 Mt.
Kumba aims to increase current production through de-bottlenecking and
optimisation of the plant. Export sales volumes for the year are also expected
to be in line with 2013 levels. 2014 production guidance for iron ore is
maintained at 44-46 Mt, excluding Thabazimbi.
Steel fundamentals remain under pressure. Although recent data points to a
recovery in economic growth in China, the construction market continues to be
fragile as concern persists over housing prices. Iron ore prices are expected
to remain around the current level as supply exceeds demand in the second six
months, though restocking by steel mills and a slowdown in Chinese domestic
iron ore production in winter, is expected to support prices towards the end
of the year.
COAL
US$ million(unless otherwise stated) 6 monthsended30 June 2014 6 monthsended30 June 2013
Underlying operating profit 260 345
Australia and Canada 18 130
South Africa 178 171
Colombia 95 96
Corporate and projects (31) (52)
Underlying EBITDA 638 726
Capital expenditure 457 476
Australia and Canada 403 420
South Africa 54 56
Share of Group underlying operating profit 9% 11%
Attributable return on capital employed % 7% 10%
Australia and Canada 0% 4%
South Africa 28% 26%
Colombia 19% 19%
Australia and Canada
Underlying operating profit decreased by 86% to $18 million, primarily due to
the impact of lower export prices, with the average realised metallurgical
coal price reducing by 23%; there was also a decrease in self-insurance
recovery amounts of $23 million. These impacts were mitigated by increased
volumes from productivity improvements, with export metallurgical sales
volumes increasing by 17%, and by lower unit costs through the continuation of
the cost-reduction programme, which led to a 4% reduction in FOB cash unit
costs at the Australian export operations.
South Africa
Underlying operating profit increased by 4% to $178 million, with a $22
million profit on sale of reserves in South Africa offsetting a 7% reduction
in the average realised export thermal coal price. Profits were further
supported by a 5% reduction in the US$ FOB unit cash cost, with the weaker
South African rand offsetting the high mining inflation environment.
Colombia
At Cerrejón, underlying operating profit decreased by 1% to $95 million,
driven by lower thermal coal prices, offset largely by the recovery in volumes
following the strike in Q1 2013.
Markets
The strengthening of the Australian dollar against the US dollar (appreciating
during the first half of 2014) has reduced profitability for thermal and
metallurgical producers in Australia, thereby forcing further cost savings and
productivity improvements.
Metallurgical coal
Seaborne metallurgical coal prices are traded at historically low levels this
year, with the Q2 quarterly HCC benchmark price reaching a record low of
$120/t. Strong Australian production and resilient US supply has resulted in
excess availability of seaborne metallurgical coal, with buyers exercising
increased optionality. The average quarterly HCC benchmark price of $132/t for
the first six months of 2014 was 22% lower than the respective period in 2013.
Semi-soft and PCI prices, however, experienced some relief, with a narrowing
of the price differential between premium quality and lower grade coking
coals.
Thermal coal
Global seaborne prices declined on average by 13%. The Newcastle reference
price dropped below $72/t in June, its lowest price in five years, as
aggressive domestic coal pricing in China dragged seaborne prices lower.
Delivered prices into Europe also broke the $72/t mark.
The global market remained well supplied despite an interrupted delivery from
South Africa due to a force majeure event at Richards Bay in February as well
as enforcement of a regulation requiring direct loading in Colombia that
reduced supply temporarily.
Demand from India picked up as absolute prices fell and the rupee
strengthened.
Australia and Canada
Anglo American weighted average achieved sales prices 6 monthsended30 June 2014 6 monthsended30 June 2013
($/tonne)
Export metallurgical coal (FOB) 117 151
Export thermal coal 81 87
Domestic thermal coal 37 39
Attributable sales volumes('000 tonnes) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export metallurgical coal 10,539 9,003
Export thermal coal 1,917 3,012
Domestic thermal coal 3,201 2,809
South Africa
Anglo American weighted average achieved sales prices ($/tonne) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export thermal coal (FOB) 75 80
Domestic thermal coal 19 20
Attributable sales volumes('000 tonnes) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export thermal coal(1) 7,960 7,964
Domestic thermal coal 18,756 19,809
(1) Excludes traded coal sales of 53,000 tonnes (30 June 2013: 145,000
tonnes).
Colombia
Anglo American weighted average achieved sales prices ($/tonne) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export thermal coal (FOB) 68 76
Attributable sales volumes('000 tonnes) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export thermal coal 5,505 4,931
Operating performance
Australia and Canada
Attributable production('000 tonnes) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export metallurgical coal 10,884 9,010
Export thermal coal 1,728 3,007
Domestic thermal coal 3,074 2,798
Export metallurgical coal production increased by 21% to 10.9 Mt, a record
first half-year performance. The underground operations delivered a 14%
increase in output, with improvements in longwall cutting hours at Grasstree
and Moranbah of 60% and 5%, respectively. Both underground sites successfully
completed planned longwall moves during H1, in contrast to a single longwall
move at Moranbah in 2013. At Dawson, the implementation of asset optimisation
initiatives at the open cut site led to a 70% increase in metallurgical coal
production. In addition, production performance was not subject to flood and
rail closures, as had occurred in Q1 2013.
Export thermal coal production was down 43% at 1.7 Mt, due to a product-mix
change to higher margin metallurgical coal, and lower production from Drayton,
as the mine is approaching the end of its life.
South Africa
Attributable production('000 tonnes) 6 monthsended30 June 2014 6 monthsended30 June 2013
Export thermal coal 8,443 7,924
Eskom coal 15,554 16,896
Domestic other 2,971 3,093
Production was 3% lower, owing to an 8% reduction in production for Eskom,
though this was mainly compensated by a 6% increase in export production on
the back of productivity gains at Goedehoop and Greenside. Production was
further supported by an improved safety performance, mitigating the
safety-related stoppages in 2013.
Colombia
Attributable production('000 tonnes) 6 monthsended30 June 2014 6 monthsended30 June 2013
Colombia export thermal coal 5,856 4,526
Cerrejón's output increased 29% to 5.9 Mt, primarily owing to the recovery in
production following the strike in Q1 2013 as well as the production ramp-up
associated with the P40 expansion project.
Projects
Australia and Canada
The greenfield Grosvenor metallurgical coal project in Queensland continues to
make progress, with all permits and licences in place. The surface
infrastructure is nearing completion, with commissioning under way, while
development of the first drift has also been completed. Underground
development works are expected to commence on schedule in October. Longwall
production remains on schedule and is forecast to commence in late 2016.
South Africa
In South Africa, the 12 Mtpa New Largo project has reached the feasibility
stage-gate. Discussions continue with Eskom to determine empowerment
structures prior to joint implementation approval.
Colombia
In Colombia, the expanded port is currently being commissioned as part of the
Cerrejón P40 project. Utilisation of the incremental capacity will be limited
in the short to medium term due to operational and market constraints. The
current plan is to produce and sell approximately 35 Mtpa for the next few
years.
Outlook
Metallurgical coal
Strong production from Australia and high US export volumes will ensure the
seaborne metallurgical coal market continues to be well supplied in the near
term. However, announcements of supply rationalisation and improving demand
from traditional markets should support a tightening in fundamentals over the
medium to long term.
2014 production guidance for metallurgical coal is increased to approximately
20 Mt (previously 18-20 Mt).
Thermal coal
Pricing pressure resulting from a well-supplied thermal market looks set to
continue in the short term. Expansions in Australia are largely pre-committed
for the next one to two years, and this will continue to keep pressure on
prices. US export volumes are falling as fixed-price contracts roll off and a
modest increase in imports to the US, mainly from Colombia, is likely.
Chinese import levels will depend on the competitive position of domestic
coals, but the growth rate of imported coal will be weaker than in previous
years. India will continue to increase its imports of thermal coal owing to
the shortage of coal in the medium term.
2014 production guidance for thermal coal (South African export and Colombia)
is reduced to 28-29 Mt (previously 29-30 Mt).
BASE METALS & MINERALS - COPPER
US$ million(unless otherwise stated) 6 months 6 months
ended30 June 2014 ended30 June 2013
Underlying operating profit 760 635
Underlying EBITDA 1,106 942
Capital expenditure 333 472
Share of Group underlying operating profit 26% 19%
Attributable return on capital employed % 22% 17%
Copper generated an underlying operating profit of $760 million, 20% higher
than the same period in 2013, as a result of a 15% increase in sales volumes,
offset by a 3% decline in average realised copper prices. C1 unit costs
reduced by 7%, owing to a combination of improved operating efficiencies,
higher grades and a weaker Chilean peso, which more than offset higher
expenditure on mine development at Los Bronces.
Markets
6 months 6 months
ended30 June 2014 ended30 June 2013
Average market prices (c/lb) 314 342
Average realised prices (c/lb) 307 318
The copper price started 2014 at 337c/lb before it softened and then
registered a steep decline in early March on the back of growing concerns of a
slowdown in the Chinese economy. Since then, government stimulus has assuaged
some of these concerns although the market is still expected to be in surplus
for the year.
The London Metal Exchange (LME) copper price at the end of June was 315c/lb,
averaging 314c/lb for the half year, 8% lower than for the same period in
2013. A negative provisional pricing adjustment of $64 million was recorded
(H1 2013: negative $189 million), resulting in an average realised price of
307c/lb (H1 2013: 318c/lb).
Operating performance
6 months 6 months
ended30 June 2014 ended30 June 2013
Attributable copper production (tonnes) 396,400 353,300
Attributable copper production rose by 12% to 396,400 tonnes.
Production at Los Bronces increased by 11% to 221,600 tonnes, with higher
grades and continued throughput improvement at both plants. The improvement in
grade reflected adjustments to extraction sequencing, with higher-grade areas
being mined sooner, ahead of more challenging winter conditions. Lower-grade
areas are expected to be reached in Q3 2014, however, offsetting these early
gains. Mine development progressed, with waste stripping increasing by 49% to
38 Mt. The improved mine development has led to reduced congestion in the mine
and improved continuity of ore feed to the two processing plants.
Production at El Soldado decreased by 38%, owing to lower ore availability and
grades following the delay to the next major phase of ore supply caused by a
geological fault, as previously disclosed. Ore feed in the second six months
will come from lower-grade stockpiles and slag from the nearby Chagres smelter
in order to bridge the gap until the next phase of ore is accessed. Output at
Mantos Blancos and Mantoverde decreased by 8% and 13% respectively because of
lower grades.
Anglo American's share of Collahuasi's production, at 105,900 tonnes increased
by 58% owing to continuing higher grades reflecting the current phase of
mining, as well as output recovering from the 49-day shutdown in H1 2013 of
the SAG Mill 3 for a planned stator motor replacement.
Projects
At the Quellaveco project in Peru, the feasibility study for the expanded mine
is continuing as planned and is expected to be ready for review during 2015.
Work on the Asana river diversion tunnel has continued along with our social
programmes in the area.
At Mantoverde, the construction of the desalination plant has been completed
meeting the current water requirements of the operation.
Outlook
2014 production guidance is increased to 725,000 to 740,000 tonnes, from
710,000 to 730,000 tonnes, in light of improved confidence in underlying
operational improvements at Los Bronces and Collahuasi. This guidance is
against a backdrop of forecast lower grades at Los Bronces and Collahuasi in
the second half as previously guided. At El Soldado, the lack of ore
availability is expected to adversely impact production during 2015 and 2016.
Ongoing market concerns arising from uncertainties over the near-term outlook
for the global economy may lead to short-term volatility in the copper price.
However, the medium- to long-term fundamentals for copper remain strong,
predominantly driven by robust demand from the emerging economies, ageing
mines and declining grades across the industry, and a lack of new supply.
BASE METALS & MINERALS - NICKEL
US$ million(unless otherwise stated) 6 months 6 months
ended30 June 2014 ended30 June 2013
Underlying operating profit/(loss) 26 (11)
Underlying EBITDA 30 (7)
Capital expenditure(1) (26) (18)
Share of Group underlying operating profit 1% 0%
Attributable return on capital employed % 2% (1)%
(1) Cash capital expenditure for Nickel of $35 million (H1 2013: $19 million)
is offset by the capitalisation of $61 million (H1 2013: $37 million) of net
operating cash flows generated by Barro Alto which has not yet reached
commercial production.
Nickel reported an underlying operating profit of $26 million, an improvement
of $37 million due to a $26 million favourable exchange-rate gain on Loma de
Níquel as well as improved cash costs at Codemin, driven by lower electricity
prices and lower project study cost spend. Underlying operating profit from
the Barro Alto project continues to be capitalised as the asset is not yet in
commercial production.
Markets
6 months 6 months
ended30 June 2014 ended30 June 2013
Average market prices (c/lb) 749 732
Average realised prices (c/lb)(1) 716 716
(1) Realised prices are now reported inclusive of Barro Alto sales. This has
led to the restatement of the 2013 realised price from 711 c/lb to 716 c/lb
Nickel prices improved following implementation of the Indonesian nickel ore
export ban in Q1 and an improvement in demand. Prices increased as the market
became more convinced that the export ban would remain in place. The ban led
to significant rises in the cost of nickel ore in China, lifting the cost of
nickel pig iron (NPI) production. The LME nickel price improved through H1,
with an average of 664c/Ib in Q1 and to 838c/Ib in Q2, with prices peaking at
962c/Ib in May.
Operating performance
6 months 6 months
ended ended
30 June 2014 30 June 2013
Attributable nickel production (tonnes) 19,800 14,700
Nickel production increased by 35% to 19,800 tonnes. Barro Alto produced
15,500 tonnes, an increase of 52%,
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