Anglo American Struggle

Anglo American rebounded strongly during 2010, giving Cynthia Carroll, who next month will have been CEO for four years, room for cheer following the collapse of most commodity prices as 2008 stumbled on. In line with the majority of non-gold miners across the world, Anglo American’s operating cash flow halved, in this case, from USD 8.1bn in 2008 to USD 4.1bn in 2009.

During the prior “commodity supercycle” boom (which started, slowly, kicking back into gear early in 2009), Anglo American had bet big on Minas Rio’s iron ore project in Brazil. In heated bids starting in 2007, Anglo American spent USD 6.7bn in cash buying Minas Rio (including 49% of LLX Minas Rio (port of Açu)). The budget for building Minas Rio, phase 1, has escalated, and is now put at around USD 5bn; full production of 28.5m tonnes (wet basis) is set to be reached during 2014.

Anglo American

USD m	2010	2009	2008	2007	2006	2005
Free cash flow
Operating cash flow	7,727	4,087	8,065	7,264	8,310	6,781
Capital expenditure	-5,280	-4,607	-5,146	-3,931	-3,686	-3,306
Free cash flow	2,447	-520	2,919	3,333	4,624	3,475
Cash on hand	6,401	3,269	2,771	3,129	3,004	3,430
Debt	-13,439	-14,315	-13,995	-8,299	-6,248	-8,439
Net debt	-7,038	-11,046	-11,224	-5,170	-3,244	-5,009
Dividends	-302	0	-1,550	-1,538	-2,888	-1,137
Stock buybacks	-64	-46	-670	-6,083	-3,663	240

Despite cash raised from ongoing disposals as Anglo American continued to restructure, net debt on the balance sheet soared from USD 3.2bn at end-2006 to USD 11.2bn at end-2008; it was largely unchanged by end-2009. Net debt at the end of 2010 was down to USD 7bn, mainly on the back of operating cash flow near doubling from USD 4.1bn in 2009 to USD 7.7bn in 2010.

The biggest contributors during 2010 were Anglo American’s iron ore and manganese division, led by subsidiary Kumba Iron Ore, which has mined at Sishen in the Northern Cape, South Africa, for more than five decades. Copper was next, mainly from Chile, and then platinum from Anglo Platinum, and then coking coal, from Australia. Over the past year, in particular, the three global stars in mining have been seaborne iron ore, copper, and coking coal.

Anglo American’s capital expenditure, a crucial indicator of corporate muscle and ambition, has run around USD 5bn a year for the past three years. The group has identified a ten-year projects pipeline that could absorb around USD 70bn in capital expenditure, doubling current group volumes.

This kind of growth, which is inevitably demanded by virtually all investors from today’s established miners, rises from a platform that Carroll has demonstrably established as competitive, safety-obsessed, and focused; overall, as she puts it, “disciplined”.

While skeptics were quick to predict a short stay for Carroll in her current job, she has shown a readiness to rise to the occasion. In South Africa, where Anglo American remains the single biggest mining company, Carroll last week told an audience at the Mining Indaba in Cape Town that “mining companies simply will not invest if they cannot be assured that the assets they create will be secure. In ignoring this truth, the false prophets who argue for nationalisation are advocating the road to ruin – a path we must not follow”.

Have other CEO voices been this strident? Carroll has also indicated her utmost trust in the South African judicial system in the highly controversial case where Kumba is suing a number of parties over the hugely disputed 21.4% stake in the mining rights at the Sishen mine.

Carroll is also highly enthusiastic over the group’s Zimele project in South Africa. This enterprise catalyst has created tens of thousands of non-mining jobs since launch in 1989, and continues to make progress against a rising wall of unemployment in the country. Carroll has confirmed that Anglo American has further committed Zimele to creating 25,000 additional non-mining jobs over the next five years.

The commitment, much talked-about at the recent World Economic Forum in Davos, has attracted much attention. The job creation target is a pledge to the Business Call to Action (BCtA), a world initiative challenging companies to apply core business expertise, technology and innovative spirit to tackle poverty, to promote growth in developing countries, and contribute to the attainment of the Millennium Development Goals (MDGs).

Anglo American is the first company from the extractive industry to have a project accepted by the BCtA. Last month, Anglo American took the unusual step of formally tieing up with a peacekeeping NGO, when the group announced with International Alert the launch of a strategic partnership to promote and implement conflict-sensitive business practice.

This is a very different Anglo American to the one launched by Ernest Oppenheimer and J.P. Morgan in 1917, when GBP 1m was raised from investors in the UK and US. Over the next decade, Anglo American would acquire control of De Beers, and start mining copper in what today is Zambia.

Some big miners

	Stock	From	From	Value
	price	high*	low*	USD bn
BHP Billiton	GBP 23.88	-9.8%	42.3%	243.60
Vale	USD 35.05	-5.9%	49.3%	185.37
Rio Tinto	GBP 44.00	-6.7%	59.9%	147.06
Suncor	CAD 44.76	0.5%	49.6%	71.22
Anglo American	GBP 32.04	-7.6%	43.8%	69.80
Xstrata	GBP 14.18	-10.2%	70.3%	68.18
Shenhua	CNY 24.73	-19.9%	21.2%	62.03
PotashCorp	CAD 60.85	-3.7%	105.9%	52.76
Barrick	USD 51.34	-7.9%	43.4%	51.26
Freeport-McMoRan	USD 54.41	-11.3%	93.6%	51.24
Norilsk	USD 22.94	-13.8%	65.3%	43.73
Coal India	INR 302.35	-15.5%	23.4%	42.24
Mosaic	USD 86.08	-3.5%	128.5%	38.40
Southern Copper	USD 43.11	-14.4%	68.7%	36.64
Goldcorp	USD 45.24	-7.6%	27.3%	36.12
* 12-month

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