Anglo comes roaring back

OFF CHOPPING BLOCK AS PROFIT DOUBLES What a difference a commodity cycle and hard mining make. Profit at Anglo American has doubled, its costs are down, and South African iron and coal assets are no longer for sale.

Anglo American has cancelled its plan to sell several assets, including South African coal and iron mines, after earnings doubled last year on cost cuts and rising metal prices.

Nickel mines in Brazil and coking coal assets in Australia will no longer be sold, chief executive officer Mark Cutifani said yesterday. The company is “happy to stick with” its iron ore and export coal mines in South Africa thanks to a massive rebound in coal and iron ore prices, he said.

Nevertheless, while Anglo had no immediate plans to sell major South African assets, including an almost 70% stake in Kumba Iron Ore, it would listen to proposals from potential suitors, Cutifani said.

The company plans to continue working to sell coal assets that supply state power utility Eskom Holdings.

During the depths of the commodities crisis, when investors were questioning whether Anglo could survive, the company unveiled a dramatic turnaround plan to unload assets and pay down debt. But, as raw material prices steadily climb higher, those fears are now long gone and the company is dialling back its restructuring plans.

“We do not need to sell assets to address the balance sheet issues, it’s done,” Cutifani said. “If any assets go from here, it will be on the basis of a portfolio adjustment.”

The stock dropped 0.7% to 1 350.50 pence as of 11.10am in London.

Bigger profits and a stock price that tripled last year show Anglo’s turnaround programme has worked. Costs dropped by a third in the past three years and revenue per employee has increased 41%, Cutifani said.

The company reported underlying earnings of $1.72 a share in the year ended December 31, compared with 0.64 cents a year earlier. That exceeded the average analyst estimate of $1.39 a share.

Net debt was reduced to $8.5 billion, well below its $10 billion target.

Anglo also aims to return to an investment-grade credit rating this year and pay a dividend in 2018, he said.

To stay afloat in 2016, Anglo pledged to shrink its business to a fraction of its former size by reducing exposure to bulk commodities. With iron ore up 80% in the past year and thermal coal up 66%, the two commodities were the biggest contributor to Anglo’s profit last year.

Anglo is aiming for a portfolio of 30 core assets, down from 40 today. – Bloomberg