Surging profit from diamonds last year brought some relief for Anglo American, which reported a $2.5bn net loss for 2014 after taking a large writedown on its flagship iron ore project.
Anglo on Friday reported a robust performance by De Beers, the diamond miner and marketing group that it bought in 2011, because of strong gem demand in the US and Asia.
By contrast the steep drop in the price of iron ore, used in steelmaking, led Anglo to take a $3.8bn pre-tax impairment in the value of Minas-Rio, a Brazilian project blighted by cost overruns and delays. The mine was the subject of $5bn of impairment charges in 2012.
Benchmark iron ore prices have halved over the past year, affecting Anglo’s anticipated earnings from Minas-Rio. The FTSE 100 group spent $5bn to buy the mine and almost $9bn to develop it, before starting to ship ore in October.
The problems at Minas-Rio contributed to a loss of confidence in Cynthia Carroll, Anglo’s previous chief executive.
Anglo also wrote down the value of some coal projects within $4.2bn of impairments outlined at its 2014 results. The miner said underlying group earnings came to $4.9bn last year, down 25 per cent compared with 2013.
However, Anglo proposed a dividend of 85 cents per share — the same level as 2013 — saying this reflected the board’s confidence in the underlying business.
In afternoon trading shares in Anglo, which have fallen 26 per cent in the past six months, were up 3.3 per cent to £12.04.
At De Beers, underlying earnings rose 36 per cent to $1.4bn. De Beers delivered a return on capital of 15 per cent, the level that Mark Cutifani, who replaced Ms Carroll in 2013, had set as a group-wide target for 2016.
“De Beers is rapidly developing into the company’s flagship business unit,” analysts at Investec said. “This remains a clear differentiator for the group versus peers, with exceptional long-term fundamentals.”
Meeting the group target for return on capital employed has become much more difficult after most commodity prices declined last year. Mr Cutifani said the goal would still “drive the right behaviour” for Anglo, which underperformed its peers in the commodities boom.
“We might not hit the number because of the price deck . . . [it] does not mean the logic is wrong,” Mr Cutifani said.
Anglo achieved a return on capital of just 8 per cent in the year to December 31, down from 11 per cent in 2013. The full-year dividend was 85 cents per share.
Net debt rose to $12.9bn at December 31, from $10.7bn one year earlier.
Mr Cutifani has put some of Anglo’s platinum, coal and copper mines up for sale as the mining group intensifies efforts to improve performance by shedding underperforming assets.
“We have shown in 2014 that we are adapting and delivering and are on the right track to transform the performance of Anglo American,” Mr Cutifani said. “There is significantly more improvement potential.”
Analysts at Nomura said: “Anglo will have done enough to allay immediate market concerns around the dividend and cash flow, although peak net debt guidance for 2015 looks to be a bit higher than we were expecting.”
Anglo said it expected net debt to reach a peak level of $13.5bn to $14bn during 2015.
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