Anglo American : 2014 Interim Results

• Improved business performance, reflecting a greater focus on mining processes and costs, underpins turnaround strategy
• Higher volumes across most of the portfolio, with cash costs down 2% in real terms
• Headwinds of weaker commodity prices ($1.0 billion underlying operating profit impact) and the effects of the platinum strike ($385 million underlying operating profit impact)
• Group underlying operating profit(1) of $2.9 billion for the half year, a 10% decrease
• Long term net debt target of $10 to $12 billion, supported by increased operating cash flows and divestment proceeds from refocusing of portfolio

Mark Cutifani, Chief Executive of Anglo American, said: "Anglo American's improved business performance, assisted by depreciating producer currencies, partially offset the headwinds of input cost inflation, the effect of the platinum strike and lower prices, primarily in bulk commodities. This performance underlines the merits of our business strategy of commodity and geographic diversification.

"Looking at our allocation of capital across the portfolio, we have resolved to refocus on those assets that offer us the greatest source of potential value - over the short and long term - and that best match our chosen areas of focus and skills to drive returns. In Platinum, we have already outlined plans to reposition the portfolio through the planned divestment of Rustenburg and Union mines and our interest in the Pandora JV operation. We plan to divest a number of other assets at the appropriate time and to redeploy that capital to support our drive for higher returns. I expect our divestments and improved business performance to support a long term net debt target of $10 to $12 billion.

"Our Driving Value programme is delivering improved operational performance, reflecting a greater focus on mining processes and costs. Across the portfolio, production volumes were up, with the notable exception of Platinum. At Sishen, where the recovery plan is being implemented, we have seen improved mining and production volumes of 5% and expect a further increase in waste volumes in the second half. In our Copper business, the 12% increase in production also demonstrates the benefits of greater mine efficiency and throughput gains.

"I can also report that we are on track to ship first iron ore from our Minas-Rio project in Brazil by the end of this year. At the end of June, we had completed 95% of the project required to achieve this objective. We are commissioning all areas of the operation and expect to complete within the budgeted total capital cost of $8.8 billion."

Mark Cutifani, added: "Safety is the clearest indicator of how we are managing the business and is always my first priority. We recorded the first quarter of 2014 with no loss of life and this positive trend in safety performance is continuing, with the key indicators all showing improvement. Our total recordable case frequency rate of 0.74 is a 31% improvement compared to FY 2013 and the lowest level ever achieved by Anglo American, while recognising that the Platinum strike did contribute to some of the safety improvements. We have made progress but it is unacceptable that three of our people have lost their lives in the first six months of this year and that others suffered injury. We are focused on five key areas which are characteristic of effective and sustainable safety management: leadership, planning, risk management, incident management and effective frontline supervision.

"The first six months of 2014 for the mining industry have seen ongoing soft demand and declines in average realised prices for most of the commodities Anglo American produces, compared to both the first half of 2013 and 2013 as a whole, reflecting uncertainty surrounding global economic growth prospects in the developed and developing economies.

"Looking at the operational improvements in more detail, we have started to make good progress at our Copper business's two largest operations in Chile at Los Bronces and Collahuasi, where mine planning improvements, stripping volumes and process tonnages, as well as strong grades in H1, delivered a 12% increase in copper production. At the constrained Sishen iron ore mine in South Africa, a redesign of the pit and changes to core operating processes are beginning to increase production. Kumba's Kolomela mine continues to perform strongly, at above production design capacity, and serves to partially offset the current challenges at Sishen. De Beers continued its upward performance trajectory, increasing output by 12% driven by stronger production performance and sales into rising demand. In Coal, we saw record first half metallurgical coal production of 10.9 Mt, a 21% increase, having improved underground longwall cutting hours at Grasstree by 60% and at Moranbah North by 5%. These improvements helped to partially offset the sharply lower price environment.

"As we look at the global economic outlook, uncertainty is likely to persist for the balance of 2014, though there are some encouraging signs that activity is strengthening in our key markets. Our diversified portfolio positions us well for the potential significant further urbanisation and industrialisation required to support growth in China and other emerging economies, while an expanding middle class is expected to support a rising intensity of consumption for our late cycle products. Over the long term, we expect new supply to be constrained and to see tightening market fundamentals and a recovery in price performance."

Notes to the table

(1) Underlying operating profit is presented before special items and remeasurements and includes the Group's attributable share of associates' and joint ventures' operating profit before special items and remeasurements - see notes 4 and 5 to the Condensed financial statements. For the definition of special items and remeasurements, see note 6 to the Condensed financial statements.

(2) See note 10 to the Condensed financial statements for basis of calculation of underlying earnings.

(3) Includes the Group's attributable share of associates' and joint ventures' revenue of $1,923 million (H1 2013: $1,788 million). See note 4 to the Condensed financial statements.

(4) Stated after special items and remeasurements. See note 6 to the Condensed financial statements. For the six months ended 30 June 2014, special items and remeasurements, including the attributable share of associates and joint ventures, and after tax and non-controlling interests, amounted to a gain of $180 million (H1 2013: loss of $847 million).

(5) Attributable ROCE is based on underlying performance and reflects the realised prices and foreign exchange during the period, and is in line with commitments made as part of the Driving Value initiatives. Where ROCE relates to a period of less than one year, the return for the period has been annualised (with the exception of De Beers - see footnote on page 25).

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