International – Global diversified miner Anglo American reported underlying earnings of $900-million, with underlying earnings before interest and taxation (EBIT) decreasing by 36% to $1.9-billion, for the six months ended 30 June 2015.

“The first six months of 2015 saw considerable further price decreases for our products amidst a volatile market environment and economic uncertainty in certain key markets,” said Anglo American chief executive Mark Cutifani.

Falling prices were seen across most products, with the realised price of iron ore down 41%, platinum down 19% and copper down 18%. This was partially mitigated by a solid cost performance and favourable exchange rates.

“Looking to the balance of this year and into next, I expect the current period of volatile markets and economic uncertainty, fuelled in part by pockets of geopolitical tension, to continue,” Cutifani predicted.

The first six months of 2015 have seen significant further weakness and ongoing volatility in the prices of the bulk commodities, particularly iron ore and metallurgical coal. Anglo American has therefore reviewed its near-and longer-term commodity price assumptions at the mid-year, while also noting the gradual and ongoing reduction of consensus prices within what remains a wide range of forecasts.

As a result, Anglo American has recorded non-cash impairments within special items at 30 June 2015 relating to Minas-Rio and Coal assets of $3.5 billion after tax.


“Overall performance for the half year was solid and largely in line with our expectations,” Cutifani said. This reflected a number of planned or otherwise expected impacts, such as the rebuild of the nickel furnaces in Brazil and the water shortage in its copper business in Chile.

Of particular note was the performance of the platinum business following last year’s strike, with the Mogalakwena open pit delivering strong volume, productivity and unit cost improvements, while Rustenburg also showed greater productivity with its now optimised mine plan.

Cutifani says the company’s cash costs were down $600 million, partially offsetting the $1.9 billion underlying EBIT impact of sharply weaker commodity prices.

Free-on-board cash costs for the group’s Australian coal decreased by 13% due to increased productivity at underground mines and cost reductions, with a 14% decrease in copper equivalent unit costs.

Turnaround strategy

“The transformation of Anglo American that I set out 18 months ago is progressing, despite considerable external challenges,” Cutifani said.

He expects the operational turnaround to generate $1.2 billion of underlying EBIT upside over the next 18 months, in addition to the $1.7 billion delivered to date.

“Structurally, we are focusing the portfolio around those assets that are of the scale and quality to generate most value to the group. We expect to generate proceeds of at least $3 billion from asset sales, including the $1.6 billion received from the sale of our 50% interest in Lafarge Tarmac, he noted.

Cutifani said that the group is unrelenting in enforcing strict cost and capital discipline across Anglo American, building upon the unit cost reductions delivered to date.

Combined with planned capital expenditure reductions of up to $1.0 billion by end 2016, we are on track to deliver our long term net debt target of $10 billion to $12 billion, with net debt after the Lafarge Tarmac proceeds at $11.9 billion.

“Having defined our portfolio and significantly improved operational performance, now is the right time to accelerate the right-sizing of the organisation that supports the future business, said Cutifani.

The group is now targeting a $500 million total cost saving, of which $300 million will be realised from its ongoing core business, through the reduction of 6 000 overhead and other indirect roles, a 46% decrease – including those that will transfer with the businesses the group is divesting.

Post asset sales, the group expects to have reduced its number of assets from 55 to 40 and reduced total employees by 35%, while maintaining copper equivalent production.

As a result, and following the asset disposals and further business improvement, the group’s underlying EBITDA margin of 25% in the first half of 2015 would increase to 35% on a like for like basis, representing a 40% improvement off a substantially lower cost base.”

“We are making fundamental changes to transform Anglo American – operationally, structurally and culturally – into a fit for purpose organisation with an enhanced resource endowment.

“Combined with our diversified strategy across the early, mid and late cycle demand segments, we are ensuring that the business is sustainable through the commodity price cycles, as well as shorter-term price shocks, and offers investors attractive and differentiated exposure to the mining industry,” Cutifani said.

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