It pays to not have all your eggs in one basket. The benefits of a diversified asset base, with operations around the globe and a broad product mix, have been illustrated by the half-year financial results of Anglo American.
The strong performance of diamonds helped save the industrial giant from disaster in the first half of the year, with its share in delisted De Beers contributing a whopping 29% to headline earnings, up from 20% the previous year.
Diamonds’ headline earnings jumped 49% to $248-million compared with the first half of last year, while the share of the second-biggest contributor, paper and packaging, increased from 18% to 21% with headline earnings up 16% to $178-million.
The increase in diamonds’ contribution occurred as platinum’s share dropped from 19% to 13% and headline earnings slipped 32%, with the strong rand outpacing a 10% increase in mine production.
Yet analysts warned against jumping to conclusions, saying they saw De Beers’s exceptional performance as a one-off event, as was the reduced production of refined platinum as a result of a temporary increase in pipeline stock levels.
De Beers’s sales increased by almost 3%, but this was a case of delayed stockpile sales relating to the company’s operations in Botswana and Namibia, explained James Bennett, mining diversification analyst at financial services group UBS.
Tony Trahar, Anglo’s chief executive, said low growth forecasts for the United States, Japan and much of “Euroland” remained of concern. “Against this background, and with the prospect of a continued strong rand/ dollar exchange rate, the outlook for Anglo American’s businesses remains challenging.”
Anglo reported interim headline earnings a share of US61c for the half-year to June 2003, up from US60c in the interim period to June 2002 and beating analyst forecasts of US56,7c.
Most analysts expect the rand to weaken this year. Investec upgraded Anglo to “buy” from “hold”, with the investment bank describing Anglo as the best value in the mining and resources sector in terms of its price-to-earnings ratio and dividend yield.
The exchange rate’s impact on headline earnings amounted to a negative $231-million, compared with a positive $127-million contribution from commodity price increases.