Anglo American plc (AAUKY.PK)

Q2 2011 Earnings Call

July 29, 2011 4:00 am ET


Neville Nicolau - Member of Executive Committee and Chief Executive of Anglo Platinum - South Africa

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

R. Medori - Finance Director, Executive Director, Chairman of Investment Committee, Member of Management Committee and Member of Executive Committee

John Mackenzie - Member of Executive Committee and Chief Executive Officer of Copper - Chile

Unknown Executive -

Seamus French - Member of Executive Committee and Chief Executive Officer of Metallurgical Coal - Australia


Tim Clark

Des Kilalea - RBC Capital Markets, LLC

Jason Fairclough - BofA Merrill Lynch

Heath Jensen

Liam Fitzpatrick - Crédit Suisse AG


Cynthia Carroll

Good morning, ladies and gentlemen, and welcome. It's very good to see you all this morning, and thank you for coming.

I'll start big giving you the highlights of what has been a strong first half to the year despite escalating cost impacts. Then I'll demonstrate how we transformed and positioned ourselves over the last 4 years to face challenges no matter where we were in the cycle. And we'll also look at the operational performances of the business. Rene will take you through the financials, and I'll outline our growth profile and how our new production will improve further our cost positions. And finally, I'll say a few words about how we see the long-term picture.

So firstly, I'd like to remind you of the journey that we've been on with our strategy, embedding a culture that focuses on business excellence. We are investing in the commodities we believe have the most attractive fundamentals. We have a well-diversified portfolio of attractive commodities with exposure to the full cycle of the development of emerging countries. We now have a performance mindset in safety, productivity, cost containment and project delivery. Our focus has been on people and driving performance with everyone getting involved. So the highlights.

Our strong financial performance in the first half is reflective of the operational and business improvement foundations we have put in place. These have enabled us to capture the maximum benefit from increased commodity prices.

The terrible tragedy in Japan has shown the world the extraordinary resilience of the Japanese people, and this was also evident in our customers who recovered strongly following the disasters. Our close relationships with customers enabled us to redirect shipments at very short notice. And this ensured demand was satisfied at the right place and at the right time.

Total group operating profit is $6 billion, up 38%. Operating profit from our core businesses was up 45%. Our underlying earnings are $3.1 billion, with earnings per share at $2.58, a 40% increase. All our core business units recorded higher operating profits.

Asset optimization and supply chain programs have delivered a combined $1.3 billion of value in the first 6 months of the year. This is how we maximize margin, by capturing the full benefit of strong prices and minimizing the impact of those events beyond our control, be it weather, be it cost inflation or infrastructure constraints.

On the growth front. Our decision in 2009 to sustain investment on our big 4 projects will pay off as we generate substantial cash flows. So the successful delivery of Barro Alto is only just the start.

Our other major -- 3 major projects are coming along extremely well. We're now in a position to take full advantage of robust demand as we deliver some of the lowest capital intensity and operating cost volumes to attractive markets. And in addition, we have another $66 billion worth of growth projects awaiting approval.

It's a very strong picture. And I'm therefore pleased to announce we have raised our interim dividend by 12% to $0.28 per share.

Before we turn to the operating performance, I'd like to talk for a few minutes about safety. As you know, safety is an absolute priority for Anglo American and for me. Over the past 5 years, we have had sustained safety improvement, and I'm therefore extremely disappointed and deeply saddened to report that 10 of our employees lost their lives in work-related incidents in the first half of the year.

Having said this, it is important to note 93% of our operations had no fatalities, and a number of our individual months have achieved exceptional performance, including the Modikwa mine in Platinum achieving -- recently achieving a South African industry record of 8 million fatality-free shifts. The new Kolomela mine in South Africa has recently achieved 13 million lost time injury free man hours.

And no matter what the record though, 10 deaths are 10 too many, and there's no ifs and there's no buts. Every man and woman working on our sites has a right to return home safely. So let me assure you we are relentless in driving towards 0 harm.

Looking at the first half of 2011. We see a story of 2 quarters: the first marked by severe weather and the second all about recovery. We acted fast as a an aligned group. We put in place recovery plans and we achieved a swift turnaround, and I expect this momentum to continue as we move through the second half of the year.

Turning to input costs. We are not immune to the pressures industry is facing. Prices for some key input commodities have escalated dramatically. As you can see from the chart, market sulfuric prices -- sulfuric acid prices are up 60%. Oil is up 27%. And this is in addition to the higher salary demand in Chile, in South Africa and Australia. And Rene will take you through how this has impacted our cost position, but we have mitigated some of the impacts through our supply chain and asset optimization programs.

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