4th Aug 2005 07:01
Anglo American PLC04 August 2005 News Release 4 August 2005 Anglo American reports record interim headline earnings for 2005, up 43% • Record interim results - headline earnings up 43% to $1.8 billion • Interim dividend rebased to 28 US cents per share, up 47% • Record performances from Base and Ferrous Metals; higher contributions from Platinum and Coal, reflecting stronger prices and volumes • Cost savings and efficiency improvements exceed target at $303 million, up 22% • Ongoing asset optimisation: disposals with an enterprise value of $1.2 billion completed • Strong cash generation: EBITDA up 25% at $4.2 billion • 5 major new projects approved totalling $1.2 billion; $5.1 billion expansion programme on track • AngloGold Ashanti achieves SA mining rights conversion HIGHLIGHTS FOR THE SIX MONTHS ENDED 6 months 6 months %30 JUNE 2005 ended ended 30.06.05 30.06.04 change IFRS IFRSUS$ million, except per share amountsGroup revenue including associates(1) 17,145 15,299 12.1%Operating profit including associates before special items(2) 2,975 2,325 28.0%Profit for the financial period attributable to equity 1,838 2,226 (17.4)%shareholders(3)Headline earnings for the period(4) 1,784 1,248 42.9%Net operating assets 36,621 36,919 (0.8)%EBITDA(5) 4,249 3,400 25.0%Net cash inflows from operating activities 2,931 2,135 37.3%Basic earnings per share (US$): Profit for the period attributable to equity shareholders 1.27 1.56 (18.6)% Headline earnings for the financial period 1.24 0.87 42.5% (1) Includes the Group's share of associates' turnover of $2,635 million (June 2004: $2,953 million). Seenote 4 to the financial information.(2) Includes share of associates' operating profit (before share of associates' tax and finance charges).See note 4 to the financial information.(3) The decrease in profit attributable to equity shareholders to $1,838 million is due to a reduction innet profit on disposals compared with the prior period.(4) See note 8 to the financial information for basis of calculation of headline earnings.(5) EBITDA is operating profit before special items plus depreciation and amortisation of subsidiariesand joint ventures and share of EBITDA of associates. EBITDA is reconciled to cash inflows fromoperations in note 16 to the financial information. First half results - overview Headline earnings increased to $1.24 per share, up 43% over the first half of2004 - a record interim level. Operating profit(1) for the half year was $2,975million, with strong contributions from Base Metals and Ferrous Metals. Kumbaand Highveld Steel in particular benefited from higher prices and improvedvolumes. There were also significant increases in contributions from Coal andPlatinum. Industrial Minerals recorded higher earnings reflecting a fullcontribution in the first half from the new Buxton cement plant. Diamonds andGold were once again affected by the ongoing firmness of the South Africancurrency: the contribution from Diamonds, before exchange gains on preferenceshares, was lower than for the prior period, while AngloGold Ashanti's resultswere in line with the first half of 2004. Paper and Packaging recorded lowerearnings in tough market conditions. The significant growth in operating profit in the first half reflects theongoing favourable trading environment for many of the Group's commodities, aswell as the progress made over the past few years in improving the operatingefficiency of Anglo American's assets, growing the asset base and leveragingprocurement spend. Prices for platinum, gold, diamonds, coal, and base andferrous metals remained healthy on the back of robust growth in China and theUS, coupled with limited growth in productive capacity. The Group's strong cashgeneration provides it with the flexibility to continue with its significantorganic growth profile as well as to pursue its disciplined acquisition processin creating a balanced portfolio of high quality natural resource assets. Over the past three years, Anglo American's focus on improving the operatingefficiency of its assets and the management of the procurement and supply chainhas delivered cost savings in excess of $1.2 billion, across all of its businessunits. In the first half, further cost savings and efficiency improvements of$303 million were attained, an increase of 22% over the prior period. These cost savings helped contain the cumulative effect of the significantincreases in energy, steel and other consumable prices, treatment and refiningcharges and labour costs at many of the Group's mining operations. AngloAmerican will maintain its cost savings and efficiency programmes in the secondhalf. Cash generation (EBITDA) also benefited from the strong operational results,reaching $4.2 billion, up 25% from last year's interim level. Interim dividend In line with the Group's progressive dividend policy and reflecting the strongfirst half increase in earnings, the interim dividend has been rebased to 28 UScents per share from 19 US cents per share, an increase of 47%. The level of thetotal dividend will, as always, be considered on the basis of the full year'sresults. Growing the asset base Since its primary listing in London in mid-1999, Anglo American has spent $15billion on acquisitions and its growth profile is one of the strongest in theindustry, with $5.1 billion of approved projects and $8 billion of unapprovedprojects across a range of commodities. In the first half, good progress wasmade on the project pipeline, with some projects moving to full production, inaddition to a number of new projects being approved. Kumba, 66% owned, continued to pursue a number of growth opportunities in ironore. In March, a major expansion project at the Sishen iron ore mine in SouthAfrica's Northern Cape province was announced. The $365 million Sishen ExpansionProject will increase Sishen's production from the current 28 million tonnes perannum to 38 million tonnes per annum by 2009. Construction work has commencedwith production ramp-up planned for mid 2007. An investment decision on the Sishen South project, with an initial productioncapacity of 3 million tonnes per annum and the potential to increase to 9million tonnes per annum, is expected in the third quarter of 2005. Work on thefeasibility study of the Faleme project in Senegal, West Africa, which has acapacity of up to 12 million tonnes per annum, is also progressing well. (1) including operating profit of associates and before special items De Beers approved the development of the Snap Lake project in Canada at a costof $513 million. Snap Lake, located in the Northwest Territories, will be DeBeers' first mine outside of Africa and the first fully underground diamond minein Canada and will begin production in 2007. The $791 million Victor project inCanada has also been approved, subject to regulatory approvals. The $67 million Codemin 2 nickel project in Brazil, which was commissioned ontime and on budget towards the end of 2004, reached design capacity in May thisyear and will take Codemin's total annual production to 10,000 tonnes of nickel.In June, the $454 million Skorpion zinc project reached design capacity and the$21 million expansion of the Chagres smelter will be completed in the fourthquarter of 2005. The feasibility study on the Barro Alto nickel project inBrazil will be completed by early 2006 and scoping studies for significantbrownfield expansions at Los Bronces and Collahuasi are in progress. In July 2005, the $65 million Isibonelo coal mine in South Africa enteredproduction on track and on budget. When it reaches full production in 2006, themine will supply 5 million tonnes of thermal coal to Sasol Synfuels. InColombia, the approved expansion at Cerrejon from 22 to 28 million tonnes perannum by 2007 is also on track and a further expansion to 32 million tonnes perannum has recently been approved. The Grasstree project in Australia isprogressing well, with weekly development exceeding plan and installation of thelongwall on target for 2006. The $650 million Dawson project has commenced andorders for some of the critical lead-time equipment have been placed. China is already a significant market for many of the Group's commodities andthe Group continues to actively look for further investment opportunities withinthe country. On 1 June, Anglo American committed to invest $150 million in theInitial Public Offering of China Shenhua Energy Company Limited, the largestcoal producer in China and the fifth largest in the world. Anglo American looksforward to a mutually beneficial strategic alliance with the company. In South Africa, the Richards Bay pulp mill modernisation and expansion projecthas been commissioned and ramp-up is ahead of budget. It is anticipated thatfull production of an additional 145,000 tonnes of pulp per annum will beachieved during 2006. The $174 million PM31 paper machine rebuild at Merebank ison track for commissioning at the end of 2005 and will bring additional capacityof 160,000 tonnes per annum. Anglo Platinum, which continues to expand production in line with robust currentand future demand for platinum group metals, recently announced the $35 millionMarikana venture with Aquarius Platinum to jointly mine contiguous properties inthe Rustenburg area. The existing $138 million Kroondal venture, also withAquarius Platinum, commenced production from its new 250,000 tonnes per monthconcentrator ahead of schedule. The $200 million 50:50 Mototolo joint venturewith Xstrata plc, announced this week, will access adjacent farms on the easternlimb of the Bushveld complex and produce 132,000 ounces of platinum and 82,000ounces of palladium in concentrate with first production in 2006. Anglo Platinumis also proceeding with a $179 million project at its Lebowa mine to replacedeclining reserves. In addition to the future potential of Obuasi Deeps in Ghana and the Boddingtonjoint venture expansion project in Australia, AngloGold Ashanti has a $1.3billion total capital expenditure programme currently focused on existingoperations in South Africa and Brazil. These projects, including the new Moabmine in South Africa, will come online within the next three years and yield atotal production of around 15 million ounces of gold over the life of theseoperations. Disposals As part of the ongoing strategy of optimising the Company's asset base, a numberof disposals have been made during the past six months. The biggest of these wasBoart Longyear, a manufacturer of mining equipment, which was agreed in June atan enterprise value of $545 million. Together with the sale of Wendt (part ofBoart Longyear) that was announced on 31 March, the total enterprise valueachieved amounted to $635 million. The sale was completed in July. 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 at an enterprise value of $469 million. In May, HighveldSteel sold its remaining stainless steel investments, Acerinox and Columbus, atan attributable enterprise value of $91 million. This followed the $70mattributable enterprise value disposal of Acerinox shares made by the Group inJanuary 2005. In July, Kumba's local partner in the Hope Downs iron ore project in Australiaexercised an option to purchase Kumba's 49% interest in the project for $176million. SA mining rights The achievement by AngloGold Ashanti of the conversion of its mineral rights inSouth Africa in respect of the Minerals and Petroleum Development Act ("the Act") is a significant milestone in terms of South African Black EconomicEmpowerment. It recognises the substantial empowerment transactions put in placeby AngloGold Ashanti, as well as the educational, community and socialprogrammes in place in the company. The intention is to introduce an EmployeeShare Ownership Scheme that will extend ownership in AngloGold Ashanti to itsemployees. The granting of the new order mining rights represents real progress in terms ofthe South African government's desire to achieve certainty in terms ofimplementing the Act. Anglo American is greatly encouraged by this positiveoutcome which reflects the open and constructive dialogue between the Group'smining businesses and the SA Department of Minerals and Energy. Outlook The outlook for most of the Group's commodities remains sound. Dollar prices formany metals and minerals have continued at high levels on the back of strongChinese growth which has offset weaker OECD demand in the first half. If Chinesedemand continues at current levels and prospects for OECD growth improve in thesecond six months, the Group's earnings should remain strong for the remainderof the year. Anglo American continues to generate substantial cash flows which it isinvesting in its $5.1 billion approved project pipeline. The growth projectsspan all of the Group's business sectors and will generate attractive returns.Further projects, growth opportunities and asset optimisations are beingevaluated. For further information, please contact: Investor Relations Media RelationsNick von Schirnding Kate AindowTel: +44 207 968 8540 Tel: +44 207 968 8619 Charles Gordon Daniel NgwepeTel: +44 207 968 8933 Tel: +27 11 638 2267 Anne DunnTel: +27 11 638 4730 Webcast: a live webcast of the interim results presentation starting at 10.00amUK time on 4th August can be accessed through the Anglo American website atwww.angloamerican.co.uk. Pictures: high resolution images can be downloaded by the media atwww.vismedia.com Anglo American plc is one of the world's largest mining and natural resourcegroups. With its subsidiaries, joint ventures and associates, it is a globalleader in platinum group metals, gold and diamonds, with significant interestsin coal, base and ferrous metals, industrial minerals and paper and packaging.The group is geographically diverse, with operations in Africa, Europe, Southand North America, Australia and Asia. Note: Throughout this press release '$' denotes United States dollars and 'cents' refers to United States cents; special items are defined in note 5 andheadline earnings are calculated as set out in note 8 to the financialinformation. EBITDA is operating profit before special items plus depreciationand amortisation of subsidiaries and joint ventures and share of EBITDA ofassociates. EBITDA is reconciled to cash inflows from operations in note 16 tothe financial information. Financial review of Group results Headline earnings per share for the half year increased to $1.24 per share, up43% over the first six months of 2004. Headline earnings totalled $1,784million, with strong contributions from Base Metals and Ferrous Metals as wellas a significant increase in contributions from Coal and Platinum. IndustrialMinerals also increased its contribution over the previous period, whileAngloGold Ashanti's results were in line with the prior corresponding period.The contribution from Diamonds before exchange gains and losses on preferenceshares declined. Paper and Packaging recorded lower earnings owing to toughmarket conditions. The Group performance was further enhanced by a lower effective tax rate, as setout on the following page, and a $59 million reduction in net finance chargesresulting principally from a $91 million exchange gain on the De Beerspreference shares. Headline earnings 6 months 6 months 30 June 30 June$ million 2005 2004Profit for the financial period attributable to equity holders 1,838 2,226Operating special items 55 -Net loss/(profit) on disposals 1 (1,005)Associates net profit on disposals (68) (2)Tax on special items (28) 32Related minority interests (14) (3)Headline earnings 1,784 1,248Headline earnings per share ($) 1.24 0.87 Profit for the period after special items decreased by 17% to $1,838 millioncompared with $2,226 million in the first half of 2004. This decrease was due toa reduction in net profit on disposals which, including associates, was $940million higher in the first half of 2004, with the $464 million profit on thesale of the Group's interest in Gold Fields and the $415 million gain on thedeemed disposal of AngloGold. Summary income statement 6 months 6 months 30 June 30 June$ million 2005 2004Operating profit before special items 2,408 1,758Special items (55) -Group operating profit before associates 2,353 1,758Net (loss)/profit on disposals (1) 1,005Net income from associates (1) 407 330Profit before finance costs 2,759 3,093Net finance costs (102) (161)Profit before tax 2,657 2,932Tax (526) (516)Profit after tax 2,131 2,416Minority interests (293) (190)Profit for the financial period attributable to equity holders 1,838 2,226Earnings per share ($) 1.27 1.56 Group operating profit including associates before special items 2,975 2,325(1) (1) Operating profit from associates 567 567Net profit on disposals 68 2 Net finance costs (40) (66) Income tax expense (185) (164)Underlying minority interest (3) (9) Net income from associates 407 330 The Group's results are influenced by a variety of currencies owing to thegeographic diversity of the Group. The South African rand on averagestrengthened against the US dollar compared with the comparative period, with anaverage exchange rate of R6.21 compared with R6.67 in the first half of 2004.Currency movements positively impacted headline earnings by $44 million, withthe favourable exchange gain on the De Beers preference shares more thenoffsetting the impact on operating results of the strengthening of the rand.There was also a positive impact of increased prices amounting to $887 million. Special items Operating special charges in respect of impairment and mine closure amounted to$55 million including a $31 million loss on the closure of Ergo in AngloGoldAshanti. Net profit on sale of operations, including associates, amounted to $67 million.These included $52 million profit on sale of Samancor Chrome, $25 million profiton sale of Acerinox and $21 million profit on sale of Wendt. This was partiallyoffset by a $50 million loss on the anticipated disposal of Hope Downs. Special items including associates were significantly higher in the first halfof 2004 at $1,007 million with the sale of the Group's interest in Gold Fieldsfor a profit of $464 million, a gain of $415 million on the deemed disposal ofAngloGold and gains on disposal of the Group's interests in First Rand Limited,Nkomati and Avgold. Net finance costs Net finance costs decreased from $161 million in the first half of 2004 to $102million. The decrease reflects the favourable exchange gain of $91 million onthe De Beers preference shares. Taxation $ million Before special Associates' Including Before special Associates' Including items tax Associates 30 items tax Associates 30 30 June 30 June 2005 June 2005 30 June 30 June 2004 June 2004 2005 2004Profit before tax 2,645 185 2,830 1,925 164 2,089Tax (554) (185) (739) (484) (164) (648)Profit for financial 2,091 - 2,091 1,441 - 1,441periodEffective tax rate including 26.1% 31.0%associates The effective rate of taxation including share of associates' tax before specialitems was 26.1%. This was a decrease from the effective rate including share ofassociates' tax of 31% in the six months ended 30 June 2004. The reduction inthe effective tax rate was principally due to a reduction in the South Africanstatutory rate from 30% to 29% and a reduction in the Ghanaian tax rate, whichresulted in a $136 million reduction in deferred tax, the benefit of which wastaken in the six month results. Without this one off benefit the effective taxrate for the period would have been 30.9%. In future periods it is expected theeffective tax rate, as adjusted above for associates' tax, will remain above thestatutory rate of 30%. Balance sheet Total shareholders' equity was $22,067 million compared with $23,125 million asat 31 December 2004. The decrease was primarily due to exchange movements. Net debt was $7,030 million, a decrease of $1,420 million from 31 December 2004,restated for the adoption of IAS 32 and IAS 39. The reduction was principallydue to exchange movements of $843 million as well as cash inflow of $600million. Net debt at 30 June 2005 comprised $9,711 million of debt (net of hedgeof $24 million), offset by $2,681 million of cash, cash equivalents andcurrent financial asset investments. Net debt to total capital as at 30 June2005 was 21.1%, compared with 22.9% at 31 December 2004. Adoption of IAS 32 and IAS 39 prospectively from 1 January 2005 gave rise to anet reduction in total shareholders' equity of $5 million. Additional detail ofthe adjustments is provided in note 24 to the financial information. The netimpact largely represents the recognition and fair value of derivatives,including embedded derivatives; the fair value of investments that werepreviously cost accounted; and the separation of the equity conversion optionwithin convertible debt instruments. Pro forma 2004 information, adjusted forthese two standards is provided in the appendix. Cash flow Net cash inflows from operating activities was $2,931 million compared with$2,135 million in the first half of 2004. EBITDA was $4,249 million, upsignificantly from $3,400 million in the first half of 2004. Depreciationincreased by $236 million to $1,199 million. Acquisition expenditure accounted for an outflow of $300 million compared with$957 million in the first half of 2004. This included $150 million in respect ofthe Group's investment in the Initial Public Offering of China Shenhua EnergyCompany Limited. Income from disposals totalled $293 million, with proceeds on the sale ofAcerinox and Columbus of $194 million and Wendt of $62 million. Proceedsremitted by associates in respect of disposals included $83 million for thesale of Samancor Chrome. Repayment of loans and capital from associates amounted to $208 million. Purchases of tangible fixed assets amounted to $1,433 million, a similar levelto the first half of 2004. Dividends An interim dividend of 28 US cents per share to be paid on 20 September 2005 hasbeen declared. OPERATIONS REVIEW In the operations review on the following pages, operating profit includesassociates' operating profit and is before special items unless otherwisestated. Ferrous Metals and Industries $ million 6 months ended 6 months ended 30.06.05 30.06.04 Operating profit including associates 791 394 Kumba 246 98 Highveld Steel 261 67 Scaw Metals 58 46 Samancor Group 121 89 Tongaat-Hulett 56 28 Boart Longyear 55 30 Terra - 41 Other (6) (5)EBITDA 961 563Net operating assets 4,355 5,017Capital expenditure 133 144Share of Group operating profit (%) 27% 17%Share of Group net operating assets (%) 12% 14% Operating profit reached a record $791 million compared with $394 million in thecorresponding period. This was attributable to sharply higher prices forvanadium and iron ore, improved volumes and increased cost savings. Significant progress has been made in reorganising the business as a supplier ofraw materials to the global carbon steel industry with the disposal of severalassets at an aggregate attributable enterprise value of $1 billion. InFebruary 2005, Anglo American and BHP Billiton announced that they had reachedagreement for the sale of their respective 40% and 60% shareholdings in SamancorChrome at an enterprise value of $469 million. In May, Highveld Steel sold itsremaining stainless steel investments, Acerinox and Columbus, for anattributable enterprise value of $91 million. This followed the $70mattributable enterprise value disposal of Acerinox shares made by the Group inJanuary 2005. The sales of Boart Longyear's subsidiary, Wendt, and the BoartLongyear Group were announced in March and June, respectively, at a combinedenterprise value of $635 million. In June, Anglo American announced the sale ofZimbabwe Alloys at an enterprise value of $10 million. Kumba's operating profit increased by 151% to $246 million (2004: $98 million)on the back of stronger commodity prices and higher sales volumes, together withsolid operational performances and increased cost savings. From the secondquarter, Kumba benefited from the annual dollar denominated benchmark iron oreprice increase of 71.5% in Japan. On 1 July, Kumba received $176 million afterits local partner in Australia exercised its option to acquire Kumba's interestin the Hope Downs iron ore project. The funds will be returned to Kumba'sshareholders. Highveld Steel had a record first half, with an operating profit of $261 million(2004: $67 million). This was largely a result of significantly higher vanadiumprices and volumes, together with increased South African steel sales. Scaw Metals achieved an operating profit of $58 million (2004: $46 million).Higher raw material prices, particularly steel scrap, increased pressure onmargins, while South African steel volumes were impacted adversely by marketuncertainty around pricing. The attributable share of Samancor's operating profit amounted to $121 million(2004: $89 million). The manganese and chrome operations benefited from higherore and alloy prices. Tongaat-Hulett's operating profit increased from $28 million to $56 millionowing to improved volumes and prices, reduced costs and a more favourablealuminium sales mix. Offtake in the seaborne iron ore market remains strong, given Chinese crudesteel production. Vanadium and manganese prices for the rest of the year areexpected to be below those achieved in the first six months. South African steeldemand could recover in the fourth quarter, although prices may come underfurther downward pressure, in keeping with international trends. Base Metals $ million 6 months ended 6 months ended 30.06.05 30.06.04Operating profit 721 568 Copper 570 435 Nickel, Niobium, Mineral Sands 141 117 Zinc 29 31 Other (19) (15) EBITDA 875 720Net operating assets 4,928 5,473Capital expenditure 100 176Share of Group operating profit (%) 24% 24%Share of Group net operating assets (%) 13% 15% Operating profit increased significantly by 27% to $721 million on the back ofhigher copper, nickel and zinc prices. Copper production was impacted adversely by an estimated 20,000 (attributable)tonne shortfall at Collahuasi arising from an outage of the main ore conveyorsystem, a change in mine sequencing and a failure of a major mill motor (inrespect of which an insurance claim has been submitted). A recovery plan hasbeen implemented and mill throughput of above design capacity is being achieved,but at marginally lower grades than budgeted. Nickel production increased to 12,600 tonnes, following ramping up of the $67million Codemin 2 project, which was commissioned towards the end of 2004 withinbudget and on time. Namakwa Sands saw record production of zircon and rutile. Skorpion's zinc output was unchanged at 56,300 tonnes. A tankhouse fire inFebruary impacted production but it has since recovered well and 100% of designcapacity was achieved in June. Black Mountain increased output of zinc and leadas it began to benefit from the higher grade Deeps orebody. While cost savings and margin improvement targets continue to be achieved, theoperations experienced significant upward pressure in uncontrollable costsarising from dollar weakness and increases in treatment and refining charges,freight, steel, power, acid, fuel and other costs. Current growth initiatives include the Barro Alto feasibility study for a30,000-35,000 tonnes per annum ferronickel operation in Brazil, as well asde-bottlenecking projects at both Namakwa Sands and Catalao and scopingstudies for increases in production at Collahuasi and Los Bronces. The ChagresSmelter expansion and the Collahuasi molybdenum projects remain within budgetand on time for commissioning in the fourth quarter. Continued investor fund interest dominated base metal prices, which reached newhighs during the first quarter, thereafter easing, before surging again in June.Conflicting signals continue to be seen, with weak first half demand in the OECDcontrasting with stronger than anticipated Chinese consumption. Inventoriesremain at very low levels, although supply growth, particularly in the case ofcopper, has continued to pick up. Platinum $ million 6 months ended 6 months ended 30.06.05 30.06.04Operating profit 410 314EBITDA 610 465Net operating assets 6,612 6,618Capital expenditure 243 292Share of Group operating profit (%) 14% 14%Share of Group net operating assets (%) 18% 18% Anglo Platinum's operating profit rose by 31% to $410 million. Factors leadingto this increase included higher dollar prices realised on metals sold,increased production and sales volumes, and a one-off benefit arising from again in the quantity of pipeline stocks. The adverse effect of the strongeraverage rand on the translation of costs was largely offset by gains on foreignexchange as the rand weakened during the first half of 2005. Refined platinum production for the first half of 2005 rose by 9.5% to 1,268,500ounces. The increase was due mainly to a shortening of the process pipeline andimproved recoveries. Equivalent refined production from the mines managed byAnglo Platinum and its joint venture partners decreased by 18,100 ounces. Thiswas primarily as a result of difficult geological and ground conditions atAmandelbult, Rustenburg and Union that were partly offset by new production fromthe expansion of the Kroondal Platinum Mine venture with Aquarius Platinum. The current operational constraints at Amandelbult, Rustenburg and Union,together with the 2004 wage settlement of 8%, led to a 13.3% increase in randunit costs compared with the first half of 2004. The added effect of thestronger average rand/dollar exchange rate for the period resulted in a cashoperating cost per equivalent refined ounce of platinum of $873. Costinitiatives, including supply chain savings, yielded savings of $12 million incomparison with the 2004 cost base. Anglo Platinum remains confident of the robustness of current and future demandfor platinum and is continuing with its expansion programme. The rate ofexpansion is reviewed on an ongoing basis, with particular emphasis on forecastrand revenue streams, to ensure that returns are maintained and shareholdervalue is enhanced. The recent weakening of the rand against the US dollar,combined with strong prevailing metal prices, results in higher projectedreturns from the projects being evaluated. If this improvement appearssustainable, the development of certain projects may be accelerated. Increased production volumes in the second half of 2005 are expected to resultin refined platinum production of 2.6 million ounces for the full year. Demandfor platinum continues to be strong and remains supportive of firm platinumprices. The most significant variable affecting operating profit in the secondhalf of 2005 will be the rand/dollar exchange rate. Coal $ million 6 months 6 months ended ended 30.06.05 30.06.04Operating profit including associates 374 201 South Africa 205 93 Australia 48 26 South America 121 82EBITDA 476 286Net operating assets 2,350 2,105Capital expenditure 126 64Share of Group operating profit (%) 13% 9%Share of Group net operating assets (%) 6% 6% Anglo Coal's operating profit was $374 million, 86% higher than for the firsthalf of 2004, mainly as a result of improved export prices. Export thermal coal prices, although well above historic average levels, havecome off the peaks reached in 2004 and are currently at around US$50 per tonne.In Europe, prices are being supported by a strong energy sector, high gas andpower prices and lower freight rates. Consequently, despite the increased costof carbon credits, coal fired generation is enabling European utilities torealise healthy margins, which in turn underpin thermal coal price levels. InAsia, demand remains similarly firm, although Chinese stocks have beenincreasing. Coking coal markets remain firm, despite steel prices beginning tocome under pressure in some regions. In South Africa and Australia, constraintsassociated with the rail and port infrastructure remain a concern. Operating profit for South African sourced coal increased by 120% to $205million. This reflects a 52% increase in export prices and a 1% increase insales volume underpinned by a 3% improvement in production to 26.6 milliontonnes. This production increase included 0.6 million tonnes from the newMafube mine. In Australia, operating profit was $48 million, which included a $28 millioninsurance claim relating to last year's incident at the Moranbah North cokingcoal mine (the 2004 first half insurance claim amounted to $33 million).Production increased to 12.7 million tonnes, including 1.9 million from MoranbahNorth which did not produce in the first half of 2004. The operating resultswere impacted by geological difficulties which restricted production at theDartbrook thermal coal mine as well as the impact of carry over tonnage atMoranbah North. Total sales from the Australia region were 7% higher and exportcoal prices rose on average by 53%. Second half performance in Australia shouldbe materially better than the first half with increased production levels andhigher realised coking coal prices as new contracts become effective. In Colombia, attributable sales tonnes increased by 4% to 4.3 million tonnes.This, together with continued tight cost control, resulted in attributableoperating profit rising from $79 million in 2004 to $109 million. At theCarbones del Guasare operation in Venezuela, attributable sales tonnes increasedby 1% to 0.8 million tonnes. The new Isibonelo colliery project, which provides coal to Sasol in South Africaentered production in July, and satisfactory progress was made at the majorGrasstree and Dawson projects in Australia. At Cerrejon in Colombia, theexpansion to a total mine production of 28 million tonnes per annum is on trackand is expected to be completed on time, and below budget, by 2007. A furtherexpansion to 32 million tonnes has recently been approved. The initial drillingprogramme at Xiwan in China was completed successfully and further drilling anda pre-feasibility study will be concluded later this year. Performance in the second half is expected to be positively impacted by the highprices for coking coal in Australia and completion of the carry-over contractsat Moranbah North. Diamonds $ million 6 months ended 6 months 30.06.05 ended 30.06.04Share of associate's operating profit 297 340EBITDA 337 375Group's share of De Beers' net assets (1) 2,114 2,052Share of Group operating profit (%) 10% 15% (1) De Beers is an independently managed associate of the Group. The Group'sshare of De Beers' net assets is disclosed.The figures for the Group's share of net operating assets shown for otherbusinesses relate to the Group's subsidiaries only. Attributable operating profit from De Beers of $297 million represented a 13%reduction against $340 million for the corresponding period last year. Thedecrease was mostly due to the impact of a weaker dollar and to tighter marginsarising largely from a significant reduction in stockpile realisations. Total production from De Beers and its partners grew by 23% to 23.7 millioncarats. As a result of the increased output, stocks have risen by about $400million compared with the levels as at 30 June 2004. Despite mixed economic data, it is estimated that demand for diamond jewelleryin the United States was up by 6% on the same period last year. Larger chainsand high-end independents have shown the strongest results and polished priceshave started to edge up at the consumer level. Performance in other markets wasmixed. The local currency value of global diamond jewellery sales is estimatedto be 5% higher than for the equivalent period in 2004. De Beers is currentlyforecasting growth of 6% in local currency retail demand for the full year owingto the level and quality of diamond marketing activity, as well as regionalmacro-economic strength. Throughout the first half, demand for rough diamonds from the cutting centreswas strong. Sales by The Diamond Trading Company (DTC), the marketing arm of DeBeers, rose by 8% to total $3.2 billion. The DTC raised its rough diamond priceson two occasions. De Beers recently announced the approval of two projects in Canada, the $513million Snap Lake project and the $791 million Victor project (which is subjectto regulatory approvals). Further expansion projects are under evaluation.During the reporting period, agreement was reached with Endiama, the Angolanstate mining company, for the establishment of a joint venture for theexploration of diamonds. In early June, the European Commission published a notice indicating itsintention to accept the commitments offered by De Beers and the Russian diamondproducer Alrosa in relation to the Alrosa Trade Agreement and allowed a 30-dayperiod for public comment. The Commission is now considering any third partycomments received. The Group's share of De Beers' headline earnings was $153 million (30 June 2004:$183 million). Headline earnings for Diamonds totalled $270 million (30 June2004: $169 million) and included preference share income of $26 million (30 June2004: $35 million) and exchange gains related to the preference shares of $91million (30 June 2004: $49 million loss). On 30 June 2005, De Beers redeemed afurther 25% of the total 10% preference shares originally in issue, with AngloAmerican receiving $175 million. The market for rough diamonds remains firm and it is expected that, unlike inprevious years, sales in the second half of 2005 will at least match those ofthe first six months and that stocks will reduce. This should have a beneficialimpact on both cash flow and earnings. Paper and Packaging $ million 6 months ended 6 months ended 30.06.05 30.06.04 Operating profit including associates 233 328 Packaging 132 170 Business Paper 89 119 Other 12 39EBITDA 449 523Net operating assets 6,636 6,166Capital expenditure 392 383Share of Group operating profit (%) 8% 14%Share of Group net operating assets (%) 18% 17% Operating profit declined by 29% from $328 million to $233 million. While marginpressure continued across most key markets, Mondi delivered a further $96million in cost savings and profit improvements. The rebranding and reorganisation of the existing businesses under the Mondiname announced in November 2004 has gone extremely well. This has served toreduce overhead structures and costs and improve the company's visibility andattractiveness to customers. Mondi Packaging's operating profit was $38 million lower at $132 million. Themarginal impact of acquisitions in early 2004 and significant cost-saving andprofit improvement initiatives have been offset by one-off restructuring costsand weak trading conditions, the latter owing mainly to a combination oflacklustre manufacturing growth in the core European markets and the strong euroeroding competitiveness internationally. There have, however, been some positivesigns with improved order intake in the sack paper sector in recent months. Mondi Business Paper's operating profit was down by 25% at $89 million. Salesvolumes increased by 3%, mainly owing to additional output from the successfulRuzomberok PM18 rebuild, while cost saving and profit improvement initiativesyielded benefits of $43 million. During the first six months pricing remainedunder pressure owing to a strong euro attracting dollar denominated imports.Capacity utilisation is gradually improving which, together with the strongerdollar, is increasing the likelihood of price increases. The Richards Bay RB720 project has been commissioned and ramp-up is ahead ofbudget, with full production expected during 2006. The PM31 paper machinerebuild at Merebank is on track for commissioning at the end of 2005. With effect from 1 January 2005, Mondi sold a 42% interest in its South Africanpackaging business to Shanduka Resources in an empowerment transaction thatvalues the entire business at $370 million. The recent strengthening of the dollar may support a firming in euro based paperprices. Efforts will intensify to ensure the continued delivery of costreductions and productivity gains. Industrial Minerals $ million 6 months ended 6 months ended 30.06.05 30.06.04 Operating profit including associates 193 181 Tarmac 183 162 Copebras 10 19EBITDA 317 288Net operating assets 4,622 4,535Capital expenditure 120 130Share of Group operating profit (%) 6% 8%Share of Group net operating assets (%) 13% 12% Industrial Minerals' operating profit of $193 million was $12 million higherthan in the first half of 2004. Tarmac's operating profit was 13% higher,largely reflecting the additional contribution from the new Buxton cement plantwhich began operating in March 2004. Profits in Copebras were $9 million down on2004 owing to the combined effects of the Brazilian currency's appreciationrelative to the dollar and reduced seasonal demand in Brazil, partiallymitigated by improved prices. In the UK, demand was comparable with 2004 and volumes were slightly above lastyear, though market conditions remain challenging. In general, margins werefavoured by price increases in January 2005 although higher hydrocarbon costslessened the benefit. Performance in the concrete products business wasmarginally better than in 2004, reflecting the benefits of restructuring;however, the impact was undermined by lower demand in the housing market, whichparticularly affected block sales. The cement plant at Buxton performed well, inline with expectations. Tarmac has conducted a fundamental organisational review to facilitateimprovements in customer service and efficiency, with Industrial Mineralsachieving cost savings of $25 million in the year to date. The new organisationbrings the benefit of greater alignment with a changing customer base, whilebetter positioning Finance, HR, Procurement and other functions to leadcontinuous improvement in the UK and international operations. Supplementing thebusiness development resources already established in the UK, Tarmac hasrecently created a new business development function, based in Frankfurt, tofurther strengthen its ability to grow its international business. Tarmac's operating profit from its international businesses fell by 3%, largelyattributable to weaker demand in Germany and Poland. Profit in Tarmac Franceimproved 12% following small bolt-on acquisitions made in the past year. Thebusiness in Spain reported profits in line with last year on the back ofstronger demand for concrete, offset by the increased cost of raw materials.Tarmac's operations in the Middle East continue to benefit from strong localdemand. Progress continues in Tarmac China and a new quarry in the Shanghairegion, which was adversely affected by delays in securing local land accessrights, is now expected to commence operations in the second half of the year. In Brazil, demand for fertiliser weakened following the drop in world soyaprices and the consequent reduction in the number of farmers planting the crop.This had a negative effect on fertiliser sales but was offset by improved salesof other products and by higher prices. The operational outlook for the year is for a continuation of challengingconditions in the UK offset in part by improved performance in TarmacInternational. The impact of exchange rates will become more significant if therecent appreciation in the dollar continues. Gold $ million 6 months ended 6 months ended 30.06.05 30.06.04 Operating profit 154 156EBITDA 415 319Net operating assets 7,105 6,971Capital expenditure 311 234Share of Group operating profit (%) 5% 7%Share of Group net operating assets (%) 19% 19% Operating profit compared with the corresponding period was 1% lower at $154million, with total cash costs increasing from $254 to $281 per ounce, owing toinflationary cost increases and stronger operating currencies. These effectswere partially offset by an 8% increase in the realised dollar gold price, andhigher grades. Gold production increased by 21% to 3 million ounces, following the inclusion ofAshanti's production for the full period compared to two months in the priorhalf year. The East and West Africa and Australia mines also posted increasedproduction, particularly at Morila and Sunrise Dam. Management continues to focus on the turnaround of the Ashanti Goldfieldsassets. AngloGold Ashanti has eight approved organic growth projects in thepipeline, including the Cuiaba expansion project in Brazil which was approvedduring the period. These projects will contribute nearly 15 million ounces at aweighted average cash cost of $184 per ounce. In addition there are severalother projects awaiting approval. Organic growth and brownfields explorationrepresent the foundation of the company's strategic aim to replace ounces andgrow the reserve and resource base. In January, AngloGold Ashanti announced a significant restructuring of its hedgebook, which saw its net hedge position reduce by some 2.2 million ounces to10.49 million ounces, being 31% of five years' production. It is the company'sintention to continue to actively manage its hedge book. AngloGold Ashanti continues to focus on reducing costs and is targeting savingsof $112 million of which $61 million has been achieved to date. Continuing costpressures, particularly in oil price impacts and mining contractor costs, aswell as continued local currency strength, have had the effect of negating someof the gains made on the cost management side. The strong investor interest in gold during the latter half of 2004 abated inthe first quarter of 2005, though there has been a return in buying interest inthe second quarter. The price rally of the past three years appears underpinnedby strong fundamentals, with the average spot price for the half-year at $427per ounce. AngloGold Ashanti recently announced that it had received notification that theDepartment of Minerals and Energy in South Africa has granted its applicationsfor new order mining rights in terms of the Mineral Resources and PetroleumDevelopment Act. The rights apply to AngloGold Ashanti's operating assets inSouth Africa. Consolidated income statementfor the six months ended 30 June 2005 Before Special items special (note 5) items 6 months 6 months 6 months 6 months Year ended ended ended ended endedUS$ million Note 30.06.05 30.06.05 30.06.05 30.06.04 31.12.04 Group revenue 4 14,510 - 14,510 12,346 26,268Total operating costs (12,102) (55) (12,157) (10,588) (22,602) Operating profit from subsidiaries and jointventures 2,408 (55) 2,353 1,758 3,666Net (loss)/profit on disposals 5 - (1) (1) 1,005 1,015Net income from associates 4 339 68 407 330 550Total profit from operations and associates 2,747 12 2,759 3,093 5,231 Investment income 320 - 320 195 563Investment expense (422) - (422) (356) (930)Net finance costs (102) - (102) (161) (367) Profit before tax 2,645 12 2,657 2,932 4,864 Income tax expense 6 (554) 28 (526) (516) (923)Profit for the financial period 2,091 40 2,131 2,416 3,941 Attributable to:Minority interests 307 (14) 293 190 440Equity shareholders of the Company 7 1,784 54 1,838 2,226 3,501 Earnings per share (US$)Basic 8 1.27 1.56 2.44Diluted 8 1.23 1.50 2.35 DividendsProposed dividend per share (US cents) 28.0 19.0 70.0Proposed dividend (US$ millions) 404 273 1,007 Dividends paid during the period per share (US cents) 51.0 39.0 58.0Related Shares:
Anglo American