Anglo American (AAUKY.PK)

H1 2012 Earnings Call

July 27, 2012 4:00 am ET

Executives

Cynthia Blum Carroll - Chief Executive Officer, Executive Director and Member of Safety & Sustainable Development Committee

René Médori - Finance Director, Executive Director and Chairman of Investment Committee

Paulo Castellari-Porchia - Chief Executive of Iron Ore Brazil

Seamus French - Chief Executive Officer of Metallurgical Coal

John Mackenzie - Chief Executive Officer of Copper - Chile

Bruce Cleaver - Co-Chief Executive Officer of De Beers SA

Analysts

Jason Fairclough - BofA Merrill Lynch, Research Division

Peter Davey

Kieran Daly - Macquarie Research

J. Timothy Clark - Deutsche Bank AG, Research Division

Caroline Learmonth - Barclays Capital, Research Division

Sylvain Brunet - Exane BNP Paribas, Research Division

Presentation

Cynthia Blum Carroll

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Good morning, everyone, and thank you very much for making it through the Olympic Game traffic to be here with us this morning. I'll start by giving you the highlights of what we have achieved this year. We'll also look at the operational performance, and René will take you through the financials. I'll then say a few words about the outlook and our disciplined approach to allocating capital to deliver sustainable shareholder value.

You have heard me talk about the journey we started more than 5 years ago to turn around performance across the group. As a result, we have a performance-driven culture and we strive for continued improvements across all areas of the business. We took the hard decisions early on to restructure our organization, and we've largely completed our divestment program to focus on the right commodities. We've generated almost $4 billion in proceeds, and during the first half of 2012, we absorbed more volatility in the external trending environment.

Prices eased from last year. René will show you a little later that this reduced operating profit by almost $2 billion. As a result, our operating profit was down by 38% to $3.7 billion.

Our decision to invest through the cycle, however, positioned us well to continue delivering volume growth at attractive returns. We've been very consistent about supporting and growing Tier 1 assets, and the projects we completed last year are ramping up well.

At the Los Bronces expansion, mill throughput is already at 92%, an industry-leading performance. Kolomela was completed on budget and 5 months ahead of schedule, and it will produce 6 million tonnes this year, exceeding the previous guidance of 4 million to 5 million tonnes. As I've often highlighted, these projects are very competitive from an operating and capital cost standpoint. Take the Los Bronces expansion project. Its capital intensity is more than 30% lower than a recently announced project in Chile. And beyond organic growth, we've simplified our minority ownership of De Beers by moving on our position of control.

And we've also acquired an additional 4.5% stake in Kumba, bringing our total holdings to almost 70%. Increasing our stake in Kumba aligns with our strategic objective of investing in large-scale assets that are long-life, low-cost profiles and have clear expansion potential. This acquisition is a low-risk acquisition and immediately cash-generative transaction that will deliver long-term value. I'll shortly provide you with more detail on Kumba's continuing strong performance.

Turning to Mozambique, our decision to acquire a stake in Revuboè project aligned with our stated objective of building a global metallurgical coal business. Through this transaction, we're securing a high-quality metallurgical coal resource potential and position in the Moatize coal basin in Mozambique. The project's expected competitive operating cost makes this a compelling long-term opportunity.

I'll take you through our operating performance a little later, but before doing this, I wish to reiterate that every decision that we have taken and will continue to take has a single objective of maximizing shareholder value. We are achieving this through a disciplined and prudent approach to managing our business and allocating capital.

In the past few years, we've reduced our workforce worldwide by about 50,000 people. We have turned around performance across our group, including Metallurgical Coal and Iron Ore. And as a result, the majority of our operations are on the lower half of the cost curve, and we will continue to drive down cost. No matter where we are in the cycle, our focus is fixed on delivering value to our shoulders, and that's why given the current volatile market, we're pleased to declare a dividend of $0.32 per share, an increase of 14%, and we are determined to sustain this level of dividend.

So before I turn to the operating performance, I'd like to say a few words on safety, our #1 priority.

We've made progress since the start of our journey towards 0 harm 5 years ago. Injury rates have fallen, and there's also been about a 56% reduction in fatality rates over that period. We've shown 0 harm is achievable in all parts of the organization, and about 94% of our operations are fatality-free.

Kolomela achieved over 25 million man-hours without an LTI. Minas-Rio achieved 30 million man-hours without an LTI. And since the start of the year, however, 7 of our colleagues have lost their lives, which I'm sure you would agree with me is unacceptable, and there is absolutely no room for complacency on safety. So we have reinforced the message in April at our senior leadership safety summit in South Africa, and we've tapped into our collective knowledge to find ways to share best practice and to make what we do on a continuous basis that much more effective.

Turning to operating performance, starting with Iron Ore and Manganese. Following a record profit in 2011, Iron Ore continue to deliver strong operational performance. Weaker prices and cost inflation have more than offset the operational gains, and despite strong headwinds, Kumba's margins remain healthy at 56%. Kolomela is a world-class iron ore operations. Some of you in Johannesburg can certainly attest to this. It showcases Anglo American's and South Africa's ability to deliver large, complex projects, and let me remind you of a few facts. Kolomela was completed on budget and 5 months ahead of schedule. Capital intensity is as much as 60% lower than other current Iron Ore projects. Cash cost delivered to China is around $55 per tonne, and the payback period is less than 3 years.

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