Anglo Profits Despite Weak Commodity Prices

Anglo's huge diamond and platinum businesses ought to fare comparably well as China rebalances to more consumption-oriented growth, and sets it apart from its peers

Daniel Rohr, CFA 17 February, 2014 | 2:34PM
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Despite weaker commodity prices, Anglo American (AAL) reported slightly improved operating results for 2013. Underlying operating profit rose to $6.6 billion from $6.3 billion, aided by a weaker South African rand, better production from two big copper mines and a full year of wholly consolidated De Beers.

Despite evidence of improving operational performance, we expect the next couple years to be challenging for Anglo from a cash-flow generation perspective. We expect prices for Anglo's two biggest earners in 2013, iron ore and copper, to decline through 2015. Weaker Chinese demand growth and resurgent supply are the common denominators to that view. We see cash from operations falling from 2013's $6.8 billion. Meanwhile, capital spending will consume $7.0 billion to $7.5 billion in 2014 - a record, as Anglo enters the stretch run on the long-delayed Minas-Rio iron ore project, and fade only slightly in 2015.

Longer-term, the cash generation picture brightens as Minas-Rio ramps, despite our expectation of lower iron ore prices, and capital spending falls. In terms of its portfolio mix, we continue to favour Anglo's long-term positioning relative to most peers. Specifically, Anglo's huge diamond and platinum businesses ought to fare comparably well as China rebalances to more consumption-oriented growth.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Anglo American PLC2,717.00 GBP0.00Rating

About Author

Daniel Rohr, CFA  is a senior equity analyst at Morningstar.