HEARD ON THE STREET: Mood Swing At Anglo American

2nd Aug 2010 06:30

This story was originally published Friday By Matthew Curtin A DOW JONES COLUMN With a stretched balance sheet, dysfunctional management, and unsolicited takeover approach, Anglo American PLC (AAL.LN, AAUKY) was not a happy company a year ago. Today, the mood has changed completely. But reassuring as the resumption of its dividend and the improved performance of its mines are, the group's long, bumpy transition from South African conglomerate to diversified international mining group remains incomplete. The stock price may continue to underperform its peers. Anglo declared a $0.25 interim dividend as operating cash flow rose 77% to $2.7 billion in the first half, helped by rising metal and coal prices but also Anglo's improved productivity. Output per employee at its coal mines improved 15% from a year ago. At its South African iron ore and platinum mines the increase was 14% and 11% higher, respectively. Factoring in $2.2 billion in asset sales underway, net debt stands at $9 billion, compared with $11 billion six months ago. Three big new projects, which Anglo would have struggled to finance had it paid a dividend last year, come on stream next year and should add $2 billion to earnings before interest tax depreciation and amortization by 2013. That is equivalent to nearly a fifth of forecast 2010 Ebitda of $11 billion. Two handicaps remain. First, delays and cost overruns continue at Minas Rio. The Brazilian iron-ore project is meant to transform Anglo into a major player in one of the world's hottest commodities. But production is now unlikely to start before mid-2013, 18 months late. Until Minas Rio kicks off, Anglo, with its particular exposure to platinum and diamonds, remains a later-cycle play on economic growth than BHP Billiton Ltd. (BHP.AU, BHP), Rio Tinto (RIO.LN, RTP), and Xstrata PLC (XTA.LN). Anglo has the weakest earnings momentum for the four, according to Liberum Capital. Anglo is still a bet on the world economy surprising investors with its strength. (Matthew Curtin has been a financial journalist since 1990, and has written on international finance and business for Dow Jones Newswires - from South Africa, Singapore and France - since 1994. He can be reached at +331 4017 1746 or by email: [email protected]) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires August 02, 2010 01:30 ET (05:30 GMT)