Anglo American continues turnaround plan amid expected headwinds

12th Dec 2013 15:40

Anglo American on Thursday said it expects to face headwinds next year as it continues to implement its turnaround plan. The miner's Chief Executive Mark Cutifani reiterated his plan to boost the company's profitability after the group's share price took a hit following labour strikes in South Africa, cost overruns at its Brazilian iron-ore project and hiccups at its Chilean copper mines. The company has more than doubled its total capital employed since 2007, but its rate of return has more than halved.Cutifani said the firm plans to bolster return on equity employed to more than 15% by 2016 from 11% in the first half of this year by generating an additional $3.9bn in annual earnings before interest and taxes (EBIT), through cost cuts, a smaller project pipeline, better operational performance and extracting more value from the sale of its products."We know what we need to do to," Cutifani said, according to The Wall Street Journal. "We have identified approximately 85% of the incremental EBIT necessary to achieve the level of return we expect from the business, and we are working on the areas where we see additional potential."The miner has identified three "buckets" from which it plans to gain an increase in profits. The first bucket is expected to deliver about $900m in additional annual profits if the company meets performance metrics at assets on time and on budget.The second will deliver about $1.2bn a year from operational improvements, net of any losses from headwinds including efforts to increase throughput at its Chilean copper plants.The third will achieve about $1.3bn annually by cutting overhead costs, reducing the company's project pipeline and generating more value from product sales. To achieve its targeted return on capital, the firm will need to generate a further $500m in profits per year, said Cutifani, who took over as Chief Executive in April. Shares fell 1.35% to 1,277p at 16:00.RD