Anglo strategy to trump results

[] — A slide in first-half earnings at mining group Anglo American Plc will be overshadowed on Friday by the firm’s efforts to show that it does not need a merger with Xstrata and has strong prospects alone.

Anglo — which produces platinum, iron ore, coal and copper — is expected to post a 72 percent fall in underlying earnings per share to $0.81, pressured by weak commodity prices, according to a consensus of forecasts from 11 analysts complied by the company.

“Key focus will be on statements outside of the numbers … Anglo quickly rejected the (Xstrata) offer, however, the market may be expecting a more detailed statement on future strategy and direction of the group,” Citigroup analysts led by Liam Fitzpatrick said in a note.

Anglo is unlikely to go into detail on its rejection of Xstrata’s “merger of equals” approach at the results presentation, a source close to the company said, but focus on its own strategic plans.

“I certainly wouldn’t expect what some might call a defence presentation,” said the source, who declined to be named.

“I expect the company to set out what it has delivered to date, and how they are proposing to continue that delivery.”

One key element will be Anglo’s progress in its plan announced last year to cut $2 billion in costs by 2011, half from boosting efficiency and the remainder through procurement.


Analyst Sylvain Brunet at Exane BNP Paribas said the Xstrata proposal may spur Anglo into increasing its cost-cutting target.

“Xstrata’s attempted merger proposal with Anglo American should serve as a wake up call for the latter and could trigger accelerated cost cutting measures.”

Investors will also be keen to see solid turnaround plans at 45-percent owned diamond giant De Beers and South African subsidiary Anglo Platinum, which posted a 95 percent drop in headline EPS on Monday.

Anglo — the world’s fourth-biggest diversified mining group by market value — is due to provide an update on its growth projects and details will be keenly watched of the group’s big iron ore projects in Brazil.

Brazil is of particular interest since analysts and investors say Anglo paid a high price last year of $5.5 billion for Minas-Rio and 69 percent of Amapa, another Brazilian iron ore project.

A source close to the company said last month that Anglo was considering finding a partner to help develop Minas-Rio, which is estimated will cost around $3.5 billion to build.

Profits at Anglo have been hit by a combination of weak commodity prices and a stronger rand that has boosted costs in its home base, South Africa.

Last year, South Africa accounted for 42 percent of Anglo’s revenue and
55 percent of operating profit.

As the world’s biggest platinum producer, the group has high exposure to platinum prices, which are hovering at $1,200 per ounce, slightly more than half the level of their peak last year of $2,230.

Copper tumbled 70 percent from last year’s peak of $8,930 per tonne, but has rebounded to $5,600 per tonne.

The best performing divisions are due to be ferrous metals, which includes iron ore, coal and base metals such as copper.