Anglo American has reported underlying profits of US$ 3.3 billion for the first half of 2013, 15% lower than the same period last year. Underlying earnings were down 28% to US$ 1.3 billion from US$ 1.7 billion.
In the first results since Mark Cutifani took over as CEO, the diversified miner also unveiled a restructuring of senior management and announced plans to improve cash flow by US$ 1.3 billion. Anglo’s ten current business areas will be consolidated down into six, including the merger of its metallurgical and thermal coal businesses under Seamus French.
“The need for a step change in performance is ever clearer against the headwinds of the macro environment,” said Cutifani. “Over recent months, the defining traits of the world around us have continued to be led by volatility and uncertainty around the short to medium term prospects of many of the major economies. In this context, we also need a fundamental shift in the organisation to a more commercial, value-oriented philosophy to focus on how we deliver value now whilst we retain exposure to a more positive longer term trajectory.”
Commenting on the announcement, analysts at Investec called it a “solid start” for Cutifani – although in line with expectations. “As with the other new CEO’s of the majors, Mark outlines the need for greater investment discipline and improved efficiencies, with the organisation structure “incentivised by the right value metrics in order to promote the right behaviour”, perhaps a shot across the bows the SA unions, who demand annual wage increases without any commensurate increases in performance.”
Metallurgical coal delivered an underlying operating profit of US$ 98 million, a 38% decrease on the first half of 2012, primarily due to the impact of lower realised export prices, which have been hit by an oversupply in the market. The miner expects this situation to continue through the rest of the year, with the market for metallurgical coal staying “subdued” into 2014.
Underlying operating profit of US$ 247 million was 43% lower than the corresponding period in 2012 due to decreased realised prices and lower sales volumes from its Colombian operations following strike in Q1 2013.
Anglo expects low prices to continue in the short term. However, it does expect some supply relief from increased US gas prices, which are driving a switch of US coal back to the domestic market.
In Asia, the company expects demand from India to remain robust at current pricing levels as new buyers seek to substitute lower grade Indonesian coal with higher grade South African coal. However, although demand will continue to be strong from China, increased competition between domestic production and imported coal is likely to lead to imported coal growth rates being weaker than previous years.
Written by Jonathan Rowland
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