Thread: Anglo stays bullish on commodities

Anglo stays bullish on commodities

DEMAND for the key metals and minerals produced by Anglo American will remain strong through to at least 2017 and the group intends increasing its production of them significantly over the next three to five years.

That was the bullish message given by CEO Cynthia Carroll to analysts and financial media at today’s briefing in London on the group’s interim results.

Carroll said world demand for copper was expected to rise at a compound annual growth rate (CAGR) of 4% from 18Mt in 2007 to 27Mt by 2017.

She also expected CAGR rates of 4% over this period for platinum and exported metallurgical coal.

Anglo forecast that world demand for platinum will rise from 8Moz last year to 12Moz in 2017 while it expected demand for metallurgical coal to increase from 220Mt to 325Mt over the same period.

The greatest increase in demand was expected for seaborne traded iron ore which was forecast to grow at a 7% CAGR from 772Mt in 2007 to 1,512Mt in 2017.

Carroll said that attempts by the mining groups to increase supply to meet this demand were being constrained by a number of factors.

These included: an increasing scarcity of basic commodities such as energy, skilled labour, water and infrastructure; long lead-times for the delivery of mining equipment; regular disruptions to supply from factors like weather, earthquakes and labour disputes and prolonged permitting processes for new projects.

Anglo is currently spending US$700m annually on heavy mining equipment and, to deliver on its current project pipeline to the end of 2010, the group needs to buy 250 new large trucks, 120 track dozers, 50 shovels, 50 drills and 35 wheel loaders.

Carroll said that, despite these constraints, Anglo would double its output of copper over the next five years from the 2007 level of 666,000t and achieve a CAGR of 9% in its production of the metal from 2008 to 2016.

She expected Anglo’s production of nickel and metallurgical coal to double over the next three years. Anglo produced 45,000t of nickel in 2007 and forecast a CAGR of 22% for its output of the metal between 2008 and 2016.

The group produced 11.3Mt of metallurgical coal last year and expected to achieve a 10.2% CAGR for the product during the period 2008 to 2016.

She also predicted Anglo would grow its iron ore production five times over the next five years from the 2007 production level of 32.4Mt and achieve an 18.6% CAGR over the period 2008 to 2016.

Carroll commented that, “Market share gains in all our major businesses will come from our production growth plans.”

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The bulk of the growth will be sourced from South America where some two-thirds of the $30bn allocated for capital projects not yet approved by the Anglo board is destined to be spent.

The major commodity on which the money will be spent is copper with ferrous metals – which includes iron ore – in second position.

Carroll stressed the role of China as the driver of world demand growth for copper, nickel, platinum and iron ore. These are the metals on which China is the most dependent for imports.

China accounted for 26% of world demand for copper in 2007 and this is expected to rise to 55% by 2017. China imported 49% of the world’s seaborne traded iron ore last year and that is expected to rise to 65% by 2017 while the country consumed 16% of the world’s platinum production last year and that is forecast to rise to 29% by 2017.

“There were 9m cars on the road in China last year but these numbers will double in ten years, “ Carroll predicted.

Carroll highlighted Anglo’s “unique position in platinum” as one of the group’s strengths on which she intended capitalising.

Anglo spent another US$600m “creeping up” its stake in Anglo Platinum (AngloPlat) in which it now holds a 78% equity stake.

Asked whether Anglo intended taking out the remaining minorities and then delisting AngloPlat Carroll replied, “ we always have that option. We will continue to look at it as the share price moves. “

Comment from one analyst was that Anglo seemed to have given preference to purchasing AngloPlat shares over its own share “buy back” programme on which it spent only $300m in the six months to end-June.

July 31 (Bloomberg) -- Anglo American Plc, the world's fourth-biggest diversified mining company, forecast a ``strong'' second half on higher platinum, coal and copper production and sustained Chinese demand.

``We expect commodity market fundamentals to remain strong,'' Chief Executive Officer Cynthia Carroll said today at a presentation in London. Chinese demand ``will create the potential for a sustained commodity up-cycle.''

Carroll, who was appointed CEO in March last year, is selling non-mining assets to focus on metals and minerals needed by the expanding Asian economies. Copper, platinum and coal traded at records in the first half because of disruption to supplies in Australia and South Africa.

``The company is benefiting from higher aggregate metal prices across the board,'' Craig Pheiffer, a general manager at Absa Asset Management Private Clients, said by telephone from Johannesburg today. ``We'll probably see some good numbers still going forward.''

The London-based company posted a 27 percent gain in first- half net income to $4.28 billion. Per-share profit before one- time items of $2.90 missed the $2.94 median of four analyst estimates in a July 25 Bloomberg survey. Sales slid 9.7 percent to $17.9 billion, the company said today in a statement.

Anglo rose 11 pence, or 0.4 percent, to 2,921 pence on the London Stock Exchange after falling 5.2 percent this year, giving a market value of 38.6 billion pounds ($76.5 billion).

Iron Ore Growth

Kumba Iron Ore Ltd., 64 percent owned by Anglo, said today said it approved a $1.15 billion expansion at its Sishen South mine in South Africa. Anglo said its Dawson and Lake Lindsay coal projects in Australia will reach full output this year.

Anglo has $15 billion of developments under way and is considering more. It aims to complete the $5.5 billion purchase of two Brazilian iron-ore mines by Aug. 5.

``Our project pipeline is expected to result in rapid production growth,'' Carroll said. Copper output will double and iron ore rise fivefold in the next five years, she said. Nickel output will double in the next three years.

Anglo said today it's still looking at options to sell its Tarmac building materials unit. The $230 million sale of Tarmac Iberia to Holcim Ltd. will be completed in the third quarter.

The sale of all of Tarmac could raise as much as $5 billion, said John Meyer, an analyst at Fairfax I.S. Plc in London.

Share Buyback

Anglo will accelerate a share buyback program in the second half, Chief Financial Officer Rene Medori told reporters on the conference call.

The company owns about 78 percent of South Africa's Anglo Platinum, the world's biggest producer of the metal. Platinum averaged $1,949.22 an ounce in the first half, 57 percent more than a year earlier, and reached a record $2,301.50 on March 4. Copper rose to a record $8,880 a pound on April 17.

Anglo also owns 45 percent of De Beers, the world's biggest diamond supplier, whose first-half sales increased by 10 percent to $3.3 billion. De Beers is ``more cautious'' on its performance in the second half.

Since starting at Anglo last year, Carroll has reorganized management of several units to improve safety and boost earnings. She appointed Neville Nicolau as CEO of Anglo Platinum, Ian Cockerill as CEO of Anglo Coal and Chris Griffith as CEO of Kumba. Kuseni Dlamini was appointed Head of Anglo American South Africa.

``Significant safety incidents'' were halved year on year as the company changed practices, Anglo said.