Cutifani pares hopes on Anglo recovery

[miningmx.com] – THE task ahead of Mark Cutifani in improving the fortunes of Anglo American, the mining group he has led since April, hit home today as the group posted lower underlying earnings while net debt ballooned $2.2bn.

Interestingly, Cutifani pared expectations about the rate of Anglo American’s recovery operationally saying the benefits of streamlining and efficiency improvements would only come to bear on the business in the next financial year.

“While I expect headwinds to continue in 2014 as we reset the business, the benefits of much-improved operational processes and performance will flow through largely in 2015 and 2016,” Cutifani said.

“In the immediate-term, we have already delivered significant sustainable improvements, including early operational improvements, overhead reduction and reducing early-stage project expenditure,” he said.

Another excellent performance by De Beers, the company in which Anglo has an 85% stake, helped soften the impact of lower profits from the group’s coal and nickel assets which suffered the effects of lower prices and above average inflation.

The platinum business – Anglo American Platinum (Amplats) – returned to something resembling good health, whilst the copper business was flat year-on-year. Kumba Iron Ore also had a reasonably good year.

Exceptional items in the form of asset write-downs, where the value of the asset is calculated to be less than the carrying value on the group’s books, lopped some $1.9bn off the income statement.

The major impairments were at Barro Alto ($0.7bn), a $200m write down at Amplats following a portfolio review, Michiquillay ($0.3bn) and Foxleigh ($0.2bn).

Anglo consequently reported a 7% decline in underlying earnings to $2.7bn, but the outcome for shareholders was a loss of $961m. This was an improvement on the 2012 financial year loss of $1.5bn, but Cutifani must know he’s in a fight.

He identified return on capital employed (ROCE) as a key financial ratio to watch and set a target of 15% as the minimum ‘break-even’. ROCE in the 2013 financial year was 11% representing no change from the 2012 financial year.

Anglo stuck to its rebased dividend policy paying a final 53 cent per share dividend and taking the total dividend for the year to 85c/share. It’s worrying, however, that net debt increased to $10.7bn from $8.5bn in the 2012 financial year.

As previously guided, Cutifani said 2014 would be a challenging year, but added that economic conditions in developed markets were showing signs of improvement whilst China would continue to grow at 7%.

“The world economy should also strengthen in 2014 and 2015 as we continue to emerge from the challenges of the global financial crisis,” said Cutifani in commentary to the group’s financial results.