London-listed South African resources group Anglo American plc (AGL) said on Friday that the strength of the South African currency would make it very challenging to sustain its record 2002 performance.
Speaking at the company’s annual general meeting in London, CEO Tony Trahar said the rand averaged R8,35 to the dollar during the first quarter and has strengthened even further in recent weeks and, at R7,25 to the US dollar, is about 40% higher than at the commencement of 2002.
“This currency situation, with the generally muted state of the world’s economies, means that the outlook for our key businesses is mixed and, notwithstanding the good first quarter results, it therefore remains unlikely that the group will repeat the record performance achieved last year.”
In 2002, Anglo achieved record headline earnings of 125 US cents per share — up 10% on the EPS achieved in 2001. Overall headline earnings for 2002 were $1 759-million compared with $1 681-million in 2001.
“This result was achieved despite difficult economic and trading conditions for a number of our key businesses and was particularly pleasing when compared with those reported by our peer group companies.
“It suggests that the mix of assets which we have assembled – following four active years of acquisitions and disposals – is well placed to secure good shareholder returns through the cycle,” Trahar said.
Trahar said a major inhibiting factor in Anglo’s share price performance during 2002 was the uncertainty surrounding the changes to mineral rights ownership and black economic empowerment legislation in South Africa.
“We fully acknowledge that the future stability of South Africa requires a much broader base of ownership amongst historically disadvantaged groups. However, significant damage was caused to investor confidence by the leaking of an early draft of the Empowerment Charter – which contained what were generally agreed to be unfinanceable targets.
“What has emerged, after discussion and consultation, is a target of 15% equity or production ownership within five years and 26% in 10 years for value. This is achievable and will provide stability going forward.”
There remain some uncertainties about how the various elements contained in the Empowerment Charter will be applied but progress has been made in rebuilding confidence, he added.
He said Anglo continues to play a leading role in corporate South Africa in promoting black economic empowerment including through procurement spending of US$800 million from black-owned businesses; developing the leading small business programme in South Africa; and participating in over US$1.8 billion in black economic empowerment transactions.
“We are disappointed by the relatively high royalty levels proposed for some commodities in South Africa in the draft Money Bill. We believe that in some sectors the proposals may both damage the international competitiveness of existing operations and reduce the relative attraction of South Africa as an investment destination.
“We are engaging with the South African authorities as part of industry efforts to achieve a reasonable outcome,” Trahar added.
Trahar added that in terms of Anglo’s progressive dividend policy and in the light of these record profits, we are able to recommend increasing the final dividend to 36 cents, resulting in the total dividend increasing by 4% to 51 US cents per share.
On the basis of the current share price, this amounts to an annual dividend yield of 3,45%.
During 2002 Anglo spent $3,7-billion on acquisitions, including the Disputada Copper mines in Chile for $1,3-billion; a controlling stake in the Russian paper mill at Syktyvkar and some 50% of the assets of the French packaging operator, La Rochette; increasing its stake in Anglo Platinum from 59,6% to 67,7%, a figure which was subsequently raised to almost 70%; and increasing the holding in Goldfields to over 20%.
Anglo Coal also increased its stake in Cerrejon Coal in Colombia and formed a joint venture in Australia with Mitsui based around the Moura mine. In addition, its Ferrous Metals division completed the acquisition of Moly-Cop to establish an international grinding media business supplying the mining industry.
“We also continued to pursue our objective of establishing a presence in the iron ore market. A Memorandum of Understanding was signed with the South African Government affirming our shared commitment to the expansion and development of the iron ore resources of the Northern Cape – including a significant empowerment dimension. This aspect of our strategy is still subject to review by the South African competition authorities,” he added.
Anglo continues to have one of the biggest, high quality project pipelines for organic growth in the resources sector. Most notable amongst these are Anglo Platinum’s expansion projects which will increase output by 75% to 3,5 million ounces of refined platinum by the end of 2006.
During 2003 a number of key projects will reach fruition with the commissioning of the new Copebras plant in Goias in Brazil; the opening of the Skorpion zinc mine in Namibia and the completion of the new cement plant at Buxton in Derbyshire.
“We are steadily achieving a broader geographical balance in our asset base with about 31% of our assets now being in South Africa and 69% in the rest of the world,” he said. – I-Net Bridge