23rd Feb 2005 07:02
Anglo American PLC23 February 2005 News Release 23 February 2005 Anglo American reports record headline earnings of $2.7 billion, up 59% • Record results: headline earnings(1) up 59% at $2,689 million; headline earnings per share up 57% at $1.88 • Total profit for the year up 83% at $2,913 million • Cash generation: EBITDA (2) up by $2.3 billion at $7.1 billion • Record Base and Ferrous Metals performances • $1.5 billion of projects successfully commissioned: $4.7 billion project pipeline on track • Ongoing optimisation of asset base: $2.1 billion of disposals, including Hudson Bay and stakes in Gold Fields and Terra. Minera Sur Andes and Kumba acquisitions performing well • Cost savings and efficiencies up 65% at $554 million • Final dividend increased by 31% to 51 cents. Total dividend up 30% at 70 cents HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER 2004 Year ended Year ended Change 31.12.04 31.12.03US$ million except per share amounts %Turnover including share of joint ventures and associates 31,795 24,909 27.6Total operating profit before operating exceptional items 4,572 2,892 58.1Profit for the year 2,913 1,592 83.0Headline earnings for the year (1) 2,689 1,694 58.7Net operating assets (3) 37,601 29,709 26.6EBITDA (2) 7,110 4,785 48.6Net cash inflow from operating activities 4,773 3,184 49.9Capital expenditure 3,129 3,025 3.4Basic earnings per share (US$): Profit for the year 2.03 1.13 79.6 Headline earnings for the year 1.88 1.20 56.7Dividend for the year (US cents per share) 70.0 54.0 29.6 (1) See note 7 for basis of calculation of headline earnings. (2) EBITDA is operating profit before exceptional items plus depreciation and amortisation of subsidiariesand share of EBITDA of joint ventures and associates. EBITDA is reconciled to net cash inflow fromoperating activities above the cash flow statement. (3) See note 2 for definition of net operating assets. Tony Trahar, Chief Executive, said: "The record results achieved by the Group in 2004 reflect the transformation ofour asset base into a focused global resources group over the last five years.During that period, we have completed over $15 billion of acquisitions and $9billion of disposals, creating a balanced portfolio of high quality naturalresource assets and positioning the Group to benefit from growing demand for ourproducts. Our strong cash generation has provided the flexibility to continueinvesting in our current businesses through our $4.7 billion project pipelineand $8 billion of potential projects, while seeking further growth opportunitiesthrough acquisition. We remain intensely focused on improving the operatingefficiency of our assets and on leveraging procurement spend and innovationinitiatives across our business units. Our ongoing programme has alreadyrealised $1.2 billion in efficiency and cost improvement initiatives across theGroup since 2002, $554 million of which were achieved in 2004. The Group achieved record headline earnings of $2.7 billion for 2004, anincrease of 59% over 2003. Global growth during 2004 was the highest forseveral decades, due both to the sustained recovery in the US and continuedrobust economic growth in Asia, in particular the ongoing industrialisation ofChina, which fed through into strong demand for many of our commodities. Copper,nickel, zinc, coal and iron ore markets all benefited materially as a result anda number of these commodities reached their highest price levels for many years. Of particular note was the strong performance by Base Metals, which recordedheadline earnings of over $1 billion on the back of record production of copper,nickel, zinc and mineral sands products and significantly higher base metalprices. The Minera Sur Andes (formerly Disputada) acquisition performedparticularly well, earning an EBITDA return of 48% on this recent investment.With global steel production surpassing 1 billion tonnes for the first time,headline earnings from Ferrous Metals and Industries also reached record levels,increasing more than fourfold. Coal and Platinum achieved increased profitcontributions compared to the prior year, benefiting from stronger prices fortheir products. However, the continued strength of the South African rand, whichrose 15% against the US dollar, remained a challenge for our South Africanoperations, impacting our gold and platinum businesses in particular. Cashgeneration increased, with EBITDA rising by 49% to $7.1 billion, on the back ofthe Group's strong operating performance. Reflecting the significant increase in earnings, the final dividend has beenincreased by 31% to 51 cents per share, giving a total dividend of 70 cents pershare, up 30%. We continue to make good progress on our project pipeline, one of the largest inthe resources sector. During 2004, the Group successfully commissioned severalmajor new projects, including the Collahuasi Rosario project in Chile, theSkorpion zinc mine in Namibia and the Buxton cement plant in the UK. Theplatinum expansion programme continues with production scheduled to increasefrom the current 2.45 million ounces per annum to 2.6 million ounces per annumin 2005. Mondi has brought on stream an additional 105,000 tonnes capacity ofpulp and 110,000 tonnes of paper at its Ruzomberok mill, completing its $233million paper and pulp expansion in Slovakia. The outlook for the year ahead is very dependent on growth prospects for bothOECD countries and China. While the leading indicators for the OECD currentlypoint to some slowing of industrial output, China continues to grow strongly andwill remain a vital market for many of our commodities. On the supply side,global output is generally set to increase and much will depend on the industrymaintaining capital discipline in the face of higher commodity prices. A keychallenge for the Group will be to continue improving operating efficiencies andcost control against a background of volatile currencies and in particular aweak US dollar. In the meantime, Anglo American's geographic and commoditydiversity, its significant project pipeline, its disciplined acquisition processand strong cash generation will continue to underpin performance." REVIEW OF 2004 Headline earnings for the year reached record levels at $2,689 million comparedwith $1,694 million in 2003. Profit for the year increased by 83% to $2,913million compared with $1,592 million in the prior year. The increased profit in2004 is principally due to strong operational results, significant profits onthe sale of the Group's non-core assets including its holding in Gold FieldsLimited and a reduction in net exceptional impairment charges. These more thancompensated for an increased net interest charge and increase in effective taxrate. Base Metals achieved record headline earnings of $1,042 million (39% of AngloAmerican's total headline earnings), an increase of over 400% compared with2003, on the back of record production of copper, nickel, zinc and mineral sandsproducts and significantly higher base metals prices. Ferrous Metals and Industries reported record headline earnings of $480 million,a rise of 349% over 2003 (18% of Anglo American's total). This performance wasdue to improved prices for iron ore, manganese, ferrochrome, steel and vanadium,a full contribution from Kumba, together with increased volumes and costsavings. Diamonds recorded headline earnings of $381 million (14% of Anglo American'stotal) compared to $386 million in 2003. Jewellery sales remained firm during2004, with strong growth in Asia-Pacific and India, in particular. Demand forrough diamonds increased and DTC sales were 3% higher than in 2003. Paper and Packaging headline earnings fell by 10% to $381 million (14% of AngloAmerican's total), reflecting a significantly tougher trading environment,particularly in the business paper sector, despite the positive impact ofincremental volumes and cost savings. Coal increased headline earnings by 51% to $351 million (13% of Anglo American'stotal) as strong coal demand during the year led to significantly higher exportcoal prices. Sales tonnage also increased by 3%. Industrial Minerals contributed $267 million to headline earnings (10% of AngloAmerican's total), $3 million lower than the prior year. Tarmac facedchallenging market conditions in the UK, with lower asphalt volumes and higherbitumen and fuel costs. However, Copebras in Brazil recorded a significantlyimproved performance due to buoyant local market conditions, increasedproduction and higher fertiliser prices. Platinum recorded a 17% increase in headline earnings to $239 million (9% ofAnglo American's total) due primarily to improved prices and greater salesvolumes, offset by the strength of the South African rand, which raised costs indollar terms. Gold recorded a 5% decrease in headline earnings to $158 million (6% of AngloAmerican's total) mainly due to stronger operating currencies, in particular theSouth African rand, and lower grades. As a result of the merger to formAngloGold Ashanti, gold production increased by 8% to 6.05 million ounces. Acquisitions One of the most significant transactions of the year was the merger of AngloGoldand Ashanti Goldfields of Ghana, which was completed in April. The merger hasresulted in a substantial increase in gold reserves against a background of adiminishing global base. AngloGold Ashanti, in which Anglo American holds a 51%stake, is the world's second largest gold mining company in terms of production.AngloGold Ashanti continues to pursue further growth opportunities in newfrontiers such as Laos, the Philippines and Russia, in partnership with juniormining and exploration companies. In April, Anglo American acquired the remaining 30% minority interest inFrantschach AG for a total consideration of $390 million. Frantschach is now awholly owned subsidiary of Anglo American. The acquisitions of Copamex'sindustrial packaging operations, renamed Mondimex, for $52 million andBauernfeind for $432 million were completed in the first quarter of 2004 and areperforming according to expectations, having bolstered Mondi's position in theNorth American and central European markets respectively. In central Europe, the acquisition by Industrial Minerals of the BilfingerBerger building materials business in December 2003 has brought with it along-term reserve position in hardstone aggregates in Germany and the CzechRepublic. Codemin in Brazil became a wholly-owned Base Metals subsidiary following thepurchase of the remaining 10% of the company from the International FinanceCorporation. Although Anglo American remains cautious about valuations at this point in thecycle, the Group continues to examine expansion and acquisition opportunities inall its business sectors. Disposals totalling $2.1 billion in 2004 In March, Anglo American disposed of its 20% stake in Gold Fields Limited toNorilsk Nickel for $1.18 billion, realising a gain of $464 million on the sale.At the beginning of 2004, Anglo American completed the disposal of its remainingstake in FirstRand Limited for $47 million. In line with Base Metals' strategy of focusing on fewer, larger, lower costassets, its 25% stake in the Nkomati nickel mine in South Africa was sold for$37 million in February and Hudson Bay Mining and Smelting in Canada was soldfor a total consideration of $257 million in December. Ferrous Metals and Industries continues to reshape its portfolio around corebusinesses. The Group's entire shareholding in Terra was sold for $255 million. In addition to the 2004 disposals, Highveld Steel and Samancor sold half theirshareholdings in Acerinox in January 2005. Anglo American's attributable shareof the proceeds was $69 million. In February 2005, Anglo American and BHPBilliton announced that they had reached agreement for the sale of theirrespective 40% and 60% shareholdings in Samancor Chrome for an enterprise valueof $469 million. Organic Growth Anglo American has one of the strongest project pipelines in the mining andnatural resource industry, with $4.7 billion of approved projects and more than$8 billion of unapproved projects, spread across all its business units andgeographies. Completed projects during 2004 The Collahuasi Rosario transition project in Chile was successfully completedfive weeks ahead of schedule and under budget at a capital cost of $627 million.Design capacity has been exceeded and the project will enable Collahuasi tomaintain production of copper in concentrate at a long term average rate of400,000 tonnes per annum. The $454 million Skorpion mine in Namibia entered commercial production in May2004 within budget, achieving 95% of design capacity by year end. Anglo Industrial Minerals' new cement plant at Buxton in the UK commencedoperation in March having been completed at a cost of £110 million, £5 millionbelow budget, and the plant is performing to expectations. In China, the YangQuarry, a new quarry supplying the Shanghai market, commenced production at theend of the year. Production will be ramped up during 2005. In Coal, the Kleinkopje and Greenside expansion projects in South Africa and theDartbook Kayuga expansion in Australia were completed. Mondi has brought on stream an additional 105,000 tonnes capacity of pulp and110,000 tonnes of paper at its Ruzomberok mill in Slovakia completing its $233million paper and pulp expansion. At Richards Bay in South Africa, the finalcommissioning of Mondi's $235 million pulp mill modernisation and expansionproject is progressing well. Current projects In December, Anglo American and Mitsui announced the approval of the $653million Dawson Complex, which will include the recapitalisation of the existingcoal operation at Moura in central Queensland, Australia and the establishmentof two additional operations on adjacent tenures. This will increase productionof coal by 5.7 million tonnes per annum, over Moura's existing saleableproduction of 7 million tonnes per annum. In October, Anglo American and Kumbasigned Heads of Agreement that could lead to the development of a major cokingcoal mine in central Queensland. The $106 million Grasstree project remains onschedule to start up during 2006 and will produce 3.9 million tonnes per annum. Earlier in the year it was announced that a Memorandum of Understanding with BHPBilliton had been signed to investigate a proposed expansion of adjacent coalresources in the Western Complex in South Africa. The Isibonelo coal mine isexpected to commence production in July 2005 and reach full production capacityin 2006, supplying 5 million tonnes per annum to Sasol. In Colombia, the approved expansion at Cerrejon from 22 million tonnes per annumto 28 million tonnes per annum is on schedule and should be achieved by 2007. During the year, approval was received for the $80 million El Soldado pitextension project that extends mine life by more than 20 years at that copperoperation and for the $21 million Chagres de-bottlenecking project, which willbe built and commissioned during the routine 45-day smelter maintenance shutdownin 2005. This will increase capacity from 162,000 tonnes per annum to 184,000tonnes per annum of copper anode/blister. The construction of a $47 millionmolybdenum plant with a capacity of 6,700 tonnes per annum at Punta Patache wasalso approved by Collahuasi and will enter production in 2006. Scoping studiesfor significant increases in production are under way at both Collahuasi and LosBronces. The $67 million Codemin 2 project in Brazil, which will increase nickelproduction to in excess of 10,000 tonnes per annum, was commissioned on time andon budget and will ramp up to full capacity during the first quarter of 2005. The sinking of both the main and ventilation shafts at Black Mountain arecomplete and hoisting operations commenced in early 2005. The development of theDeeps mine and the ramping up of zinc production will continue throughout 2005.The final estimated cost of the project is $125 million, against a budget of$110 million, as a result of the strength of the rand. In October, Kumba announced the $55 million expansion of its Grootegeluk coalmine in South Africa to increase production of semi-soft coking coal from 1.8million tonnes per annum to 2.5 million tonnes per annum by 2006. Regarding Kumba's Hope Downs iron ore project in Australia, which has been thesubject of a dispute with a local partner, Kumba is appealing a recentarbitration decision. Subject to Kumba's rights of appeal, the process fordetermining a fair value, at which the local partner can elect to acquireKumba's project interest, has commenced. Until Kumba's participation in theproject is finally resolved, it continues to perform its contractual obligationsin respect of the project. After a lengthy permitting process, the Group's associate De Beers has receivedapproval of its environmental impact assessment for the proposed Snap Lakediamond mine in Canada's Northwest Territories. Subject to final approval beinggranted by the De Beers board in the first half of 2005, start-up production isenvisaged in 2007. In line with Anglo Platinum's stated policy of implementing only those projectswhich meet its investment hurdle rate, and with the unlikely prospect of higherrand prices in the short term, the rate of implementation of the expansionprogramme has been adjusted. Current plans for 2005 indicate capital expenditureof $1 billion at current exchange rates and refined platinum production of 2.6million ounces. While Anglo Platinum remains flexible with regard to the rateof expansion, the revised implementation is expected to result in refinedplatinum production in 2006 of between 2.7 million and 2.8 million ounces. The $121 million Cuiaba deepening project in Brazil has been approved, whichwill increase production at AngloGold Ashanti Brazil (formerly Morro Velho) from190,000 ounces per year to 250,000 ounces per year within two years of theproject's completion. Cost savings All businesses across the Group continued to focus on efficiency and costimprovement initiatives during 2004. The total cost savings achieved amounted to$554 million, of which operating efficiencies (comprising maintenance,administration and overheads, labour and materials and supplies) realised $366million, restructuring and synergies $6 million and procurement $182 million. South Africa: Black Economic Empowerment During the year, several developments took place concerning the legislativeframework governing the transformation process in South Africa's miningindustry. Most notably, the Mineral and Petroleum Resources Development Act,which aims to make transformation effective across a broad front - includinghuman resources and community development, as well as employment equity --- cameinto effect on 1 May 2004. All South African mining operations are focused onthe implementation of this Act. During the year the South African governmentconfirmed that royalties in terms of the Royalty Bill will become payable onlyin 2009; a second draft of the Royalty Bill is expected to be unveiled in thefuture. We have adopted a comprehensive approach to transformation in South Africa,including the establishment of a transformation committee, which has beenintegrated with all the business unit activities. Procurement remains animportant area of focus: over the last year, we spent the equivalent of $900million on business development and the procurement of goods and services fromblack-owned businesses, up 62% on the previous year. Mondi South Africa concluded two significant empowerment transactions during2004. Firstly in June, a joint venture was formed with Shanduka Resources(formerly MCI Resources) in its integrated newsprint business with Mondiretaining a 58% interest, and secondly, Mondi disposed of 42% of its $370million South African packaging businesses to Shanduka, effective 1 January2005. These empowerment transactions allowed for a further 8% interest in thenewsprint business and 3% interest in the packaging business to be set aside byMondi for broad-based participation by Mondi South Africa employees and relevantcommunities. Anglo American has submitted a number of applications to convert old-orderrights into new-order mineral rights. The Group hopes to be able to reportprogress in this regard later in the year. Exceptional items Operating exceptional charges amounted to $92 million. These includedimpairments or write-downs of $100 million to the carrying value of BlackMountain in Base Metals and the Group's share, $117 million, of an impairment ofPalabora in Base Metals. Impairments were partially offset by the $154 millionreversal of a previous impairment of Terra Industries Inc. Non-operating exceptional gains amounted to $520 million. These included $464million of profit from the sale of the Group's holding in Gold Fields Limited. Interest The net interest charge increased from $319 million in the prior year to $359million in 2004. The increase reflects higher average net debt levels during2004 when compared to the average during 2003. Taxation The effective rate of taxation before exceptional items was 30% compared to 29%in 2003. This change was due to a number of one-off tax benefits arising in 2003and a change in the mix of earnings contributed by the Group's businesses. Balance sheet Total shareholders' funds were $24,998 million compared with $19,772 million(1)as at 31 December 2003. The increase was primarily due to retained earnings andthe appreciation of the South African rand and other local currencies againstthe dollar. Net debt was $8,121 million, a decrease of $512 million from 2003. Net debt at31 December 2004 comprised $10,782 million of debt, offset by $2,661 million ofcash and current asset investments. Net debt to total capital as at 31 December2004 was 21.5%, compared with 27.1%(1) in 2003. Cash flow Net cash flow from operations was $4,773 million compared with $3,184 million in2003. EBITDA was $7,110 million, a substantial increase of 49% from $4,785million in 2003. Depreciation and amortisation increased by $660 million to$2,123 million. Acquisitions expenditure accounted for an outflow of $1,119 million comparedwith $1,469 million in 2003. The Group has increased its interests in AngloPlatinum to 74.8% and, following the merger of AngloGold and Ashanti Goldfields,purchased further shares in AngloGold Ashanti to restore the Group's holding to51%. The Group has also acquired the remaining 30% minority interest inFrantschach AG. (1) Restated for UITF (Urgent Issues Task Force) abstract 38 'Accounting forESOP trusts'. See Note 1 to the financial information. Proceeds from disposals, excluding sale of other investments, totalled $1,863million, with $1,180 million from the sale of Gold Fields Limited, $246 millioncash consideration from the sale of Hudson Bay Mining and Smelting Co Ltd and$255 million from the sale of Terra Industries Inc. Net proceeds from sale ofother investments totalled $263 million, including sale of our remaining stakein FirstRand Limited, part disposal of our interest in Western Areas and sale ofour interest in Avgold. Purchases of tangible fixed assets amounted to $3,129 million, an increase of$104 million from 2003. Increased capital expenditure by Paper and Packaging,AngloGold Ashanti and Ferrous Metals and Industries was partially offset by areduction in capital expenditure by Anglo Platinum. Dividend The directors recommend a final dividend of 51 US cents per share to be paid on29 April 2005. Total dividends for the year amount to 70 US cents per share,increasing last year's total dividend by 30%. Outlook The outlook for the year ahead is very dependent on growth prospects for bothOECD countries and China. While the leading indicators for the OECD currentlypoint to some slowing of industrial output, China continues to grow strongly andwill remain a vital market for many of Anglo American's commodities. On thesupply side, global output is generally set to increase, and much will depend onthe industry maintaining capital discipline in the face of higher commodityprices. A key challenge for the Group will be to continue improving operatingefficiencies and cost control against a background of volatile currencies and inparticular a weak US dollar. In the meantime, Anglo American's geographic andcommodity diversity, its significant project pipeline, its disciplinedacquisition process and strong cash generation will continue to underpinperformance. For further information: Anglo American - LondonInvestor Relations Media RelationsNick von Schirnding Kate AindowTel: +44 207 698 8540 Tel: +44 207 698 8619 Charlie GordonTel: +44 207 698 8933 Anglo American - JohannesburgInvestor Relations Media RelationsAnne Dunn Marion DixonTel: +27 11 638 4730 Tel: +27 11 638 3001 Notes to Editors: Anglo American plc is one of the world's largest mining and natural resourcegroups. With its subsidiaries, joint ventures and associates, it is a globalleader in platinum group metals, gold and diamonds, with significant interestsin coal, base and ferrous metals, industrial minerals and paper and packaging.The group is geographically diverse, with operations in Africa, Europe, Southand North America, Australia and Asia. (www.angloamerican.co.uk) Note: Throughout this press release '$' denotes United States dollars. Webcast: A live webcast of the results presentation starting at 10am GMT on 23 February2005 can be accessed through the Anglo American website atwww.angloamerican.co.uk. Pictures: High resolution images can be downloaded by the media at www.vismedia.com OPERATIONS REVIEW BASE METALS $ million 2004 2003Total operating profit before exceptional items 1,275 286 Copper 1,046 269 Nickel, Niobium, Mineral Sands 224 106 Zinc 38 (62) Head office expenses and other (33) (27)Total operating profit after exceptional items 1,038 78Headline earnings 1,042 206EBITDA 1,626 569Net operating assets 4,062 4,087Capital expenditure 286 352Share of Group headline earnings (%) 39 12Share of Group net operating assets (%) 11 14 Anglo Base generated record operating profits, before exceptional items, of$1,275 million (2003: $286 million) following record production of copper,nickel, zinc and mineral sands products and significantly higher base metalprices. While on-mine cost control remained tight, margins were adverselyaffected by increased prices in areas such as energy, explosives, chemicals,freight, insurance and, in the copper concentrate market, a significant increasein treatment charges and refining charges. However, $47 million was realisedfrom efficiency improvements and cost saving initiatives, partly offsetting theincreased operating costs. Markets 2004 witnessed a record performance on the back of a sustained rebound in worldeconomic growth. Strong growth in metal demand, together with relativelyconstrained supply increases, resulted in metal market deficits and lowerinventories. This, together with a weakening of the US dollar and significantspeculative fund interest, propelled US dollar base metal prices to multi-yearhighs. Operating performance The copper division's operating profit before exceptional items was $1,046million (2003: $269 million) as a result of its highest ever attributable copperproduction of 766,000 tonnes (2003: 708,800 tonnes) and a higher average copperprice received of 133 c/lb (2003: 81 c/lb). Los Bronces produced a record231,600 tonnes on the back of higher mining rates and grades and improvedmetallurgical recoveries. Attributable production from Collahuasi was a record211,600 tonnes, mainly due to higher tonnages treated through the concentratorfollowing the Rosario project commissioning. The Rosario transition project was successfully completed five weeks ahead ofschedule at a capital cost of $627 million (budget $654 million) and its millthroughput has consistently exceeded design capacity of 110,000 tonnes per day.The $80 million El Soldado pit extension project, approved during the year, willextend mine life by more than 20 years. The $21 million Chagres de-bottleneckingproject, which increases production capacity from 162,000 tonnes per annum to184,000 tonnes per annum of anode/blister, was also approved during the year andwill be built and commissioned during 2005. The construction of a $47 millionmolybdenum plant with a capacity of 6,700 tonnes per annum at Punta Patache wasapproved by Collahuasi and will enter production in 2006. Scoping studies forsignificant increases in production are under way at both Collahuasi and LosBronces. The Minera Sur Andes operations generated an operating profit of $511 million in2004. Current indications are that the remaining $86 million of the contingentpurchase price will be paid in May 2005. The Group's share of an impairment of Palabora amounted to $117 million. The nickel, niobium and mineral sands division generated an operating profit of$224 million (2003: $106 million) on the back of attributable nickel productionof 24,000 tonnes and an average nickel price received of 617 c/lb (2003: 403 c/lb). Production at both Loma de Niquel and Codemin was essentially unchanged,while niobium production rose slightly. At Namakwa, rutile and zircon productiongrew by 16% and 28% respectively as the operation recovered from theafter-effects of the mineral separation plant fire in the second half of 2003.All operations saw significant upward pressure on costs due to currency effects,the rising prices of key inputs such as power, fuel oil, aluminium powder andanthracite and, in Brazil, the imposition of new taxes. The 25% interest in the Nkomati joint venture was sold for $37 million andCodemin became a wholly owned subsidiary following the purchase of theoutstanding 10% of the company. The $67 million Codemin 2 project which willincrease nickel production to in excess of 10,000 tonnes per annum, wascommissioned on time and on budget and will ramp up to full capacity during thefirst quarter of 2005. The Barro Alto feasibility study will be completed in2005. The zinc division's operating profit before exceptional items was $38 million(2003: $62 million loss) following zinc production of 410,700 tonnes and anaverage zinc price received of 48 c/lb (2003: 38 c/lb). Skorpion mine enteredcommercial production in May 2004. The operation produced 119,200 tonnes of zincduring 2004 and achieved 95% of capacity by year end. Lisheen saw lowerproduction of zinc and lead due to lower grades and reduced mining rates aheadof the commissioning of the pastefill plant which commenced in October 2004.Black Mountain continued to experience lack of mining flexibility ahead of theDeeps orebody entering production. Mill throughput was maintained and zincproduction rose 9% but lower grades resulted in lead production of 37,500 tonnes(2003: 39,600 tonnes). Currency effects at all operations placed significantupward pressure on costs. The sinking of both the main and ventilation shafts at Black Mountain iscomplete and hoisting operations commenced in early 2005. The development of theDeeps mine and the ramping up of zinc production will continue throughout 2005.The final estimated cost of the project is $125 million, against a budget of$110 million, as a result of the strength of the rand. Hudson Bay, which contributed $37 million to operating profit in 2004, was soldin December for $257 million, resulting in a $42 million loss on the sale. Adecision was also made to impair the carrying value of Black Mountain by $100million. Outlook A weaker US dollar and low metal inventories should provide a solid support todollar-denominated prices. Nonetheless, some base metals markets could movetowards balance or even into surplus in the second half as price-induced supplyincreases gather pace. FERROUS METALS AND INDUSTRIES $ million 2004 2003Total operating profit before exceptional items 895 208 Kumba 205 33 Highveld Steel 168 11 Scaw Metals 101 70 Samancor 236 41 Boart Longyear 67 33 Tongaat-Hulett 69 10 Terra 53 14 Other (4) (4)Total operating profit after exceptional items 1,050 208Headline earnings 480 107EBITDA 1,249 441Net operating assets 5,534 4,629Capital expenditure 284 195Share of Group headline earnings (%) 18 6Share of Group net operating assets (%) 15 16 Ferrous Metals and Industries lifted operating profit before exceptional itemsto record levels in 2004, from $208 million to $895 million. The businessbenefited from improved prices for iron ore, manganese, ferrochrome, steel andvanadium. In addition, significant progress was made in efficiency improvementsand cost saving initiatives which totalled $103 million. Markets World crude steel production in 2004 increased by 8.8% over 2003, to a recordlevel at 1.05 billion tonnes of crude steel, while China produced 272.5 milliontonnes of crude steel, an increase of 23.2%. The South African steel market wasalso characterised by strong local demand, rising by 20%. In respect of US fertiliser group, Terra, a previous impairment of $154 millionwas released during the year as an operating exceptional gain. Anglo American'sentire shareholding in Terra was sold for $255 million, resulting in a furtherexceptional gain of $13 million. In January 2005, Highveld Steel and Samancor sold half their shareholdings inAcerinox. Anglo American's attributable share of the proceeds was $69 million.In February 2005, Anglo American and BHP Billiton announced that they hadreached agreement for the sale of their respective 40% and 60% shareholdings inSamancor Chrome for an enterprise value of $469 million. Operating performance Kumba's contribution to Anglo American's operating profit before exceptionalitems was $205 million (as a subsidiary) compared with $33 million in 2003(representing a 20.1% attributable equity interest for 10 months and as asubsidiary for one month). This performance reflected higher commodity prices,solid operational performances and margin-improvement initiatives, countered tosome extent by the strong rand. The global market for seaborne iron oreincreased by an estimated 95 million tonnes in 2004. Kumba's iron ore operationsbenefited from an average 19% annual increase in dollar-denominated prices, witheffect from 1 April, and further significant increases are anticipated in 2005.Its Sishen and Thabazimbi mines produced a total of 30.1 million tonnes of ironore during the year, of which 20.9 million tonnes were exported. Regarding Kumba's Hope Downs iron ore project in Australia, which has been thesubject of a dispute with a local partner, Kumba is appealing a recentarbitration decision. Subject to Kumba's rights of appeal, the process fordetermining a fair value, at which the local partner can elect to acquireKumba's project interest, has commenced. Until Kumba's participation in theproject is finally resolved, it continues to perform its contractual obligationsin respect of the project. Scaw Metals' operating profit was $101 million (2003: $70 million). This wasachieved against a background of greatly increased international steel makingraw material prices and resulting input cost increases, offset to some extent byhigher selling prices. Production was higher, with strong performances in mostdivisions. Import competition, however, aided by the strong rand and weakdollar, continued to have a negative effect on some of Scaw's downstreambusinesses. The attributable share of Samancor's operating profit amounted to $236 million(2003: $41 million). The manganese business had an outstanding year, benefitingfrom improved market conditions as a result of product shortages, drivenprimarily by Chinese crude steel production. This led to significantly higheralloy prices being achieved in 2004. The chrome operations benefited similarlyfrom higher ferrochrome prices, offset to some extent by the strong rand. Thebenchmark ferrochrome price rose by 60% to average 61 USc/lb during the year. Highveld Steel had a record year, with an operating profit of $168 million(2003: $11 million). This was largely a result of higher prices for steel,vanadium and manganese alloys, together with increased volumes sold into theSouth African market. Production costs were well controlled and cost savings of$38 million were achieved, resulting in substantially higher operating margins.Ferrovanadium prices increased from historically low levels in early 2003 ofaround $6/kgV to recent levels of $52/kgV. All divisions, with the exception ofVanchem, exceeded 2003 production volumes. Boart Longyear's operating profit totalled $67 million (2003: $33 million).Product and contracting results in the Americas and Asia Pacific weresubstantially better than last year owing to much higher drilling activity,while those in sub-Saharan Africa improved as a result of increased sales ofrockdrills and capital equipment. The Hardmaterials and Wendt operationsbenefited from restructurings undertaken in 2003, and Wendt also profited fromincreased machine sales as a result of the improved business environment. TheEuropean business continued to struggle, posting a loss for the full year. Tongaat-Hulett's operating profit was $69 million (2003: $10 million). Thealuminium division performed well on the back of increased volumes, an improvedproduct mix, and reduced costs, while the sugar division's profitability wasnegatively impacted by the relatively small South African sugar crop. Importcompetition and higher maize input costs adversely affected the starch andglucose operations. A new maize procurement model and product pricing wasimplemented in the fourth quarter, which will benefit profitability. MorelandProperties posted strong results capitalising on buoyant demand across all itsportfolios. Terra generated an attributable operating profit before exceptional items of $53million (2003: $14 million), largely reflecting the higher nitrogen margins. Outlook Ferrous metal prices may soften in the coming year as anticipated Chinese demandfor steel slows. China's domestic steel consumption growth rate has reportedlyfallen as the country shifts from being the world's biggest steel importer to anet exporter. The persistent strength of the rand is expected to continue toaffect margins adversely in the coming year. Ferrous Metals and Industries willcontinue to reshape its portfolio around core businesses, focusing on increasediron ore output and improved margins through greater operating efficiencies andcost saving initiatives. COAL $ million 2004 2003Total operating profit 487 333 South Africa 244 133 Australia 79 130 South America 164 70Headline earnings 351 232EBITDA 686 505Net operating assets 2,539 2,152Capital expenditure 217 207Share of Group headline earnings (%) 13 14Share of Group net operating assets (%) 7 7 Operating profit increased by 46% to $487 million, mainly due to higher exportprices and a 3 million tonne (3%) rise in sales. Markets During the year, coal demand was strong and prices increased markedly.Metallurgical coal prices were driven by robust steel sector raw materialdemand, led by sustained Chinese economic growth and rising imports, a tightsupply situation and logistics chain constraints. Healthy thermal coal offtakein China moderated the level of Chinese exports. Power, oil, gas and thermal coal prices were influenced by continuedinefficiencies in the logistics chain, mainly affecting South Africa andAustralia, coupled with global energy demand and security of supply concerns.Relatively small imbalances in supply and demand continue to bring significantprice and directional uncertainty to the world's energy and raw materialmarkets, especially for thermal coals. Spot South African steam coal pricesincreased by 73% during the first six months and although they had reduced by25% at year end, they remain well above historic average price levels. Operating performance Operating profit for South African-sourced coal, at $244 million, was 83% higherthan in 2003 and export prices were up 42%. The rand continued to strengthenagainst the dollar, reducing headline earnings by $17 million. Production rose by 5% to 54.5 million tonnes. This reflected strong domesticdemand from Eskom, the South African power utility, which led Kriel and New Vaalcollieries to produce at record levels. Plans are in place to acquire additionalmining equipment for New Denmark, the other colliery serving the domesticmarket, so that it can increase output substantially in 2005. Production at mostof the export mines was slightly higher, with the exception of Bank and Landau,where difficult mining conditions affected production. Capital expenditure in South Africa rose by $27 million, mainly due to thedevelopment of Isibonelo colliery, due to start production in 2005. Followingthe signing of a memorandum of understanding with BHP Billiton relating to theWestern Complex reserves, a feasibility study is investigating the optimal useof these reserves. Operating profit for the Australian operations fell by 39% to $79 million. Thiswas mainly because production ceased at Moranbah North Mine (MNM) for eightmonths following a roof collapse at the tail end of the longwall face in January2004. The effects were partly mitigated by an estimated $40 million, theproceeds from a related insurance claim. Gains from exchange-rate hedges takenout during the year dampened some of the adverse effects of the strongerAustralian dollar (up by 11% against the US currency). Following the roof stratacollapse at MNM, the longwall was relocated. Production resumed in late Augustand by year end production rates were reaching targeted expectations. However,the colliery produced 2.3 million tonnes less high-margin coking coal than theprevious year. At Dartbrook, output was marginally down and production atDrayton was in line with prior year, while Callide, Moura and Capcoal exceededprevious performances, which offset MNM's negative volume impact. Aggregateattributable saleable coal production was in line with the previous year, at25.6 million tonnes. Total attributable sales declined by 4% to 25.5 million tonnes, though domesticsales increased by 0.7 million tonnes, mainly driven by generating capacitydemand. Export sales were further limited by port constraints at Dalrymple BayCoal Terminal, though a port-allocation system at Newcastle has helped eliminateship congestion. The Moura/Theodore/Dawson project was announced in December and is scheduled tocommence in early 2005. Work continues on the feasibility study for LakeLindsay, adjacent to the Capcoal complex. On 18 June, a Supreme Court decision on the Grasstree project's compliance withthe Coal Mining Safety and Health Regulations resulted in Grasstree suspendingoperations. This suspension was lifted at the beginning of December andGrasstree remains on schedule to start up during 2006. Dartbrook successfullymade the transition to the Kayuga seam during the first six months. Anglo Coal has now acquired all the shares in Australian Power and EnergyLimited (APEL) that it did not previously own. APEL is conducting apre-feasibility study into producing liquid fuel from brown coal in Victoria. Operating profit at the South American operations rose by 134% to $164 millionfollowing significantly improved coal prices and a 9% increase in attributablesales volume, to 9.9 million tonnes. These gains were partly offset by increasesin fuel prices and royalty payments and the effects of the weakening dollar. Inaddition, equipment availability at Venezuela's Carbones del Guasare (CDG) wasreduced by administration problems with newly introduced exchange controls,although these appeared to be under control by the year end. Cerrejon continues to expand its operations, with a production goal of 28million tonnes per annum by the end of 2006. Feasibility studies on furtherexpansion opportunities are under way at both Cerrejon and CDG. Anglo Coal realised $51 million from efficiency improvements and cost savinginitiatives. Outlook With MNM back in operation, improved production is expected in 2005. Rand andAustralian dollar strength together with coal prices will continue to be the twomain variables. Metallurgical coal prices have again risen substantially innegotiations for 2005, and high prices for thermal coals - notwithstanding theirreductions in the second half of 2004 - are expected to continue in the currentyear. INDUSTRIAL MINERALS $ million 2004 2003Total operating profit before exceptional items 346 325 Tarmac 280 290 Copebras 66 35Total operating profit after exceptional items 337 325Headline earnings 267 270EBITDA 624 557Net operating assets 4,729 4,304Capital expenditure 299 316Share of Group headline earnings (%) 10 16Share of Group net operating assets (%) 13 14 Operating profit before exceptional items increased by 6% to $346 million.Tarmac group's operating profit before exceptional items declined by 3% to $280million, mainly due to challenging market conditions in the UK. In contrast,Copebras benefited from buoyant local market conditions and increasedinternational fertiliser prices which, together with the increased productionfrom the new plant, resulted in an 89% increase in operating profit. Markets and operating performance In the UK, markets were disappointing. Following the completion of work on largeprojects such as the M6 toll road in 2003, demand for asphalt was weaker, withlittle major contract activity during the year. Aggregates demand was slightlylower, although concrete volumes increased. Modest price improvements wereachieved, but these were insufficient to offset higher bitumen and fuel costs.The benefits of Tarmac's ongoing business improvement and procurement programmescontinued to be felt, with the group achieving a total of $64 million in costsavings and efficiency improvements, but these were partially offset by thedisappointing performance of Concrete Products. By contrast, the cement business had a good year. The new Buxton plant beganoperating in March, having been completed at a cost of £110 million - £5 millionbelow budget. The plant is performing to expectations, which has resulted in anear-doubling in contribution from this business. The mortar business alsoperformed well, assisted by recent investments in dry silo mortar plants inLeeds, Glasgow and Coventry. As Tarmac continued to develop its business in theUK, three acquisitions were completed during the year, including that of David WGordon Ltd, one of Scotland's leading concrete block producers. Significantinvestments were also made in new plant, including a new ready-mixed concreteplant at Kings Cross in London and the replant of a major limestone quarry inSouth Yorkshire. In continental Europe, operating profit grew by 9%. France benefited from astrong private housing market, although the public sector was more subdued. Thebusinesses in Poland and the Czech Republic experienced stronger marketconditions. The latter also benefited from a first-time contribution fromBilfinger Berger Baustoffe, which is performing above expectations. During theyear, Wisniowka, a well-located high quality sandstone quarry in central Poland,was acquired. This will enable the business to benefit from anticipated Polishinfrastructure projects. Operating profit in Spain improved again despite weakermarket conditions in Madrid. The business on the Mediterranean coast, which wasthe main part of the Mavike acquisition in 2002, showed a substantialimprovement. Weak market conditions, however, continued in Germany. The Middle East business experienced another year of substantial growth. Withits local partner, Tarmac is developing a new quarry in the United Arab Emiratesto supply this buoyant market. The Far East business continued to improve. Atthe end of the year a new quarry supplying the Shanghai market commencedoperation. Production will be ramped up during 2005. Copebras had an excellent year. Operating profit increased by 89%, due tocontinued strong Brazilian demand for phosphate-based fertilisers and higherinternational prices. The continuing recovery of the South American economiesalso resulted in a significant improvement in sales volumes of sodiumtripolyphosphate (STPP), which is used in detergents. Outlook Market conditions in the UK are expected to remain extremely challengingthroughout 2005. Volumes are not expected to grow significantly and the industryis facing cost increases arising mainly from fossil fuel price rises andlegislative compliance. Tarmac has announced price increases for all its majorproducts with effect from the beginning of January. In addition, Tarmac'sperformance will be underpinned by continuing cost reductions and initiatives toimprove customer service. In continental Europe, healthy market conditions are expected in Poland and theCzech Republic as these economies continue to grow. The short term outlook inGermany remains uncertain, although in those major cities where the business isactive, demand is expected to remain stable. The run-up to the 2006 World Cup,which takes place in Germany, may provide a boost. In Spain, although demand inMadrid may be weaker, continued growth on the Mediterranean coast is expected.France is expected to see modest improvement. In all regions, opportunities toinvest in the core product areas will continue to be examined - both in existingand adjacent countries of focus. Local market conditions for fertilisers in Brazil remain buoyant although thereis some concern about lower international prices for some agriculturalcommodities. However, the new plant at Goias, which is in the country's interiorand away from the threat of imports, gives Copebras a strong position in thismarket. PLATINUM $ million 2004 2003Total operating profit 537 433Headline earnings 239 205EBITDA 867 673Net operating assets 7,563 6,119Capital expenditure 633 1,004Share of Group headline earnings (%) 9 12Share of Group net operating assets (%) 20 21 Anglo Platinum's operating profit rose by 24% to $537 million. This was largelydue to improved prices and greater sales volumes, though partially offset by thestrength of the rand, which raised costs in dollar terms. Markets The average dollar price realised for the basket of metals sold equated to$1,194 per platinum ounce sold, 25.9% greater than in 2003, with improvedplatinum, rhodium and nickel prices making the largest contribution. The averagerealised price for platinum of $842 per ounce was $146 higher, while rhodiumprices climbed from $527 to $933 per ounce, with nickel rising from $4.07 perpound to $5.92. Operating performance Refined platinum production increased by 6.3% to 2.45 million ounces. Theincrease was due mainly to improved smelting recoveries, additional productionfrom the mines and the commencement of the Western Limb Tailings RetreatmentPlant in January 2004. Cash operating costs per equivalent refined ounce of platinum rose to $784following a 9.2% increase in rand unit costs and the strength of the randagainst the dollar, which raised costs in dollar terms. Mining unit costs wereadversely affected by production lost to a wage strike in October, the ongoingsubstitution of higher grade Merensky production with UG2 production anddifficult geological conditions at Amandelbult and Modikwa which, whileanticipated, had a greater impact than expected. Cost performance at theprocessing operations was excellent and the overall smelting and refining unitcost decreased in rand terms. The restructuring initiative has made goodprogress to the stage where sustainable cost savings will be realised from 2005.During 2004, a total of $80 million was achieved in cost saving initiatives. In May 2004, Anglo Platinum successfully concluded a rights offer of convertibleperpetual cumulative preference shares, which raised $599 million. AngloAmerican subscribed for the rights offer, investing $459 million. The proceedswere used to reduce short term borrowings. Net debt has decreased from $1,038million at the end of 2003 to $608 million. Capital expenditure for 2004amounted to $633 million (2003: $1,004 million). Operations at the Anglo Platinum Converting Process were stable and in line withplanned production build-ups, with significantly reduced sulphur emissions. ThePolokwane Smelter recovered well from the cooler failure and overall performancefor the year was good. The Western Limb Tailings Retreatment plant commissionedat the end of 2003 achieved a rapid build-up of tonnage and is continuingtowards maximising recoveries. The Kroondal Platinum Mine, jointly mined with Aquarius Platinum, is operatingwell and made a useful contribution to Anglo Platinum's performance for theyear. Negotiations in respect of other joint ventures are continuing. Anglo Platinum continues to work closely with South Africa's Department ofMinerals and Energy and good progress is being made towards meeting therequirements of the Mineral and Petroleum Resources Development Act and theBroad-based Economic Empowerment Charter. The conversion of 'old-order' rightsto 'new-order' rights in accordance with the requirements of the new Act hasbegun. Outlook Anglo Platinum remains confident of the robustness of current and future demandfor platinum and will continue its expansion programme. In line with its statedpolicy of implementing only those projects which meet its investment hurdlerate, and with the unlikely prospect of higher rand prices in the short term,the rate of implementation of the expansion programme has been adjusted. Currentplans for 2005 indicate refined platinum production of 2.6 million ounces. WhileAnglo Platinum remains flexible with regard to the rate of expansion, therevised implementation is expected to result in refined platinum production in2006 of between 2.7 and 2.8 million ounces. Demand for platinum continues to be strong and given the existing currencyenvironment and the outlook for supply, is supportive of a platinum price atlevels of $800 per ounce and above. GOLD $ million 2004 2003Total operating profit before exceptional items 263 369Total operating profit 262 326Headline earnings 158 167EBITDA 701 642Net operating assets 6,425 3,302Capital expenditure 572 339Share of Group headline earnings (%) 6 10Share of Group net operating assets (%) 17 11 Total operating profit before exceptional items was 29% lower at $263 million(2003: $369 million). The average spot price of $409 per ounce for the year was$46 per ounce or 12.7% stronger than for 2003. However, the South African randstrengthened against the dollar by some 15% during the year and the averagelocal price of R84,700 per kilogram was 4% lower than for 2003. Despite theincrease in the average dollar gold price and a rise in gold output, total cashcosts were $54/oz higher, at $268/oz, mainly due to stronger operatingcurrencies and lower grades. Efficiency improvements and cost saving initiativestotalled $51 million.Related Shares:
Anglo American