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It’s payback time – and how. Anglo American is finally reaping the rewards of capital expenditure made four and five years ago, announcing on Friday that its 2011 operating profit rose by 14 per cent. Strong cash flows and the miner’s $5.4bn sale of a stake in its Chilean copper unit cut net debt by 80 per cent and allowed an increased full-year dividend of 74 cents a share. Sure, debt will climb again as Anglo pays tax on its Chilean gain and forks out $5.1bn for the Oppenheimer family stake in De Beers. But the levels will be manageable. Now with a broad array of assets, Cynthia Carroll, chief executive, can ride the commodity cycle even harder.

However, Anglo – like all miners – is not immune to the rise in labour, energy and other input prices. South African electricity costs rose 27 per cent in 2011, and Anglo Platinum’s cost base is still too high. Hence, the company’s focus on its pipeline of tier one, low-cost, long-life growth assets. In Latin America, the Barro Alto nickel project as well as the expansion of Los Bronces and Collahuasi copper mines were completed last year. And Anglo’s biggest bet, its $6bn Minas-Rio iron ore project in Brazil, should ship its first ore next year. At current prices, it could land Brazilian ore in China at an all-in cost of $45-$50 a tonne, not shabby compared with costs from Australia’s Pilbara. Yet Anglo’s shares, trading at 9 times forward earnings, neither reflect its improved financial state or its growth options. Nor has talk of a bid by a combined Glencore and Xstrata moved the stock, though Glenstrata is hardly a done deal. The valuation instead reflects persistent concern about resource nationalism and the still unpredictable South African government. Resolution of Anglo’s tangle with Chile’s state-owned copper producer Codelco would provide a boost. But still more needs to be done to calm investors.

Email the Lex team in confidence at lex@ft.com

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