13th Feb 2015 10:57
LONDON (Alliance News) - Anglo American PLC Friday reported an expected drop in underlying earnings in 2014 on the back of weaker commodity prices and reduced its capital expenditure budget for 2015.
The miner also took a USD3.9 billion impairment charge, mainly related to its iron ore mine in Brazil, which led to a wider net loss. However, the company maintained its dividend unchanged.
For the year ended December 31, Anglo American reported underlying earnings before interest and tax of USD4.9 billion, a 25% reduction from GBP6.62 billion in 2013, due to weaker commodity prices which were partially offset by a small foreign exchange gain and increased production and sales.
"Our diversified product portfolio provided us with a degree of insulation from the particularly sharp price falls for the bulk commodities of iron ore and coal, albeit in an environment where weaker commodity prices accounted for USD2.4 billion of underlying EBIT reduction," said Anglo American Chief Executive Mark Cufitani.
Revenue for 2014 fell by 6% on the back of weaker commodity prices, partially offset by increased production and sales. Revenue totalled USD30.98 billion compared to USD33.06 billion in 2013.
Underlying earnings before interest, tax, depreciation and amortization for the year was USD7.83 billion, an 18% decrease from 2013, when Anglo American reported underlying EBITDA of USD9.52 billion.
Anglo American booked impairments totalling USD3.9 billion, of which USD3.5 billion was attributable to the company's Minas Rio iron ore mine in Brazil, which was toward the top end of analysts expectations of between USD3.0 to USD4.0 billion.
The impairments led to the miner recording a net loss of USD2.51 billion in 2014 from a USD961 million net loss in 2013.
The impairment charge on the company's flagship Brazilian iron ore mine was a result of the steep drop in the price of iron, a key steel-making ingredient.
Anglo American retained its dividend at USD0.85 per share, flat from 2013.
"We are committed to maintaining a robust capital structure which balances long-term business value growth with sustainable capital returns to shareholders...Anglo American's dividend policy is to provide a base dividend that will be maintained or increased through the cycle," said Cufitani.
The company said net debt stood at USD12.9 billion, an increase from 2013, and Anglo American said it expects net debt to reach a peak of between USD13.5 billion to USD14.0 billion in 2015.
"In the immediate term, I expect tough trading conditions to prevail during 2015, but we are determined to continue to build on our already very significant operational improvements, drive towards an effective and efficient organisation and culture, and to be unwavering in our capital discipline," Cufitani said in the company's statement.
Capital expenditure for the year slightly fell to USD6.0 billion in 2014, of which USD3.2 billion was committed to expansionary projects, whilst USD2.0 billion was spent on "sustaining our existing business". Anglo American said capital expenditure in 2014 was USD400 million below its estimates.
In 2015, Anglo American has reduced its budget and will spend around USD5.2 billion in capital expenditure. The company's previous guidance was a budget between USD5.2 billion and USD5.5 billion.
Expansionary capital expenditure remains concentrated on the delivery of Anglo American's portfolio of major projects such as Minas-Rio in Brazil and Barro Alto and Grosvenor in Australia, it said. As these projects transition into operational production, expansionary capital will decrease, which will enable the company to further align its level of growth investment with prevailing commodity market conditions.
"In contrast to the financial performance, operational performance across the majority of our commodities improved compared with the prior year," said Anglo American.
Production at Kumba iron ore project in South Africa increased 14% year on year to 48.2 million tonnes after a "strong performance" from the Kolomela and Sishen mines. Iron production in 2015 is set to remain fairly flat between 47 to 48 million tonnes.
The company's Minas Rio mine began producing and shipping its first iron ore in the fourth quarter of 2014, and Anglo American will continue to ramp up production with the expectation it will reach its capacity in the second quarter of 2016. By the end of 2015, the project will be at 80% of its capacity, said Anglo American.
Metallurgical coal production in Australia and Canada rose by 12% from 2013 to 21 million tonnes, whilst export thermal coal totalled 35 million tonnes, driven by improved operating equipment efficiencies at the Grasstree mine. In 2015, Anglo American has forecast metallurgical production to remain flat while export thermal coal will fall to 28 to 30 million tonnes.
Anglo American said cost of sales for coal production fell by 8% in the period in relation to labour, contractor and maintenance costs.
Copper production fell during 2014 to 748,000 tonnes, and the company said it is expecting to produce between 720,000 to 750,000 tonnes in 2015.
During 2014, nickel production rose by 8% year on year whilst export thermal coal production increased by 5%. However, copper production fell by 3%, partially offset by group copper equivalent production rising by 4%.
Platinum production in 2014 fell by 21% to 1.8 million ounces, largely caused by the strike that affected three sites in South Africa, causing the company to lose 532,000 ounces of production. Costs at the South African operations increased as a result of inflationary pressures in the country, although underlying cost reduction initiatives, specifically in relation to corporate restructuring, have made progress, it said.
Platinum unit costs rose by 20% in 2014 from 2013, mainly driven by the strike action in the first half. Anglo American said as a result of the "no work, no pay policy," the company made USD300 million in cost savings.
Platinum production in 2015 is set to rise to between 2.3 million and 2.4 million ounces.
At De Beers, the company's diamond unit, production rose by 5% to 32.6 million carats, which has potential to rise in 2015 with a target of 32 million to 34 million carats.
Anglo American shares were up 2.8% to 1,198.00 pence per share on Friday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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