Anglo American PLC (OTCPK:AAUKY) is a worldwide mining company with operations in Africa, Australia, North America, South America, Europe and Asia. The company boasts a highly diversified mining portfolio which includes the platinum group of metals, diamonds, copper, nickel, iron ore, coal and other minerals. The company's revenues are well divided between platinum, iron ore and coal (both thermal and metallurgical), which provided approximately 60% of revenues in 2010 with each providing about 20% each. The remaining 40% was provided by copper 15%, diamonds 8% and other mining and industrial activities 17%. Operating profit increased substantially in 2010 driven by improved results in the iron ore, copper and platinum operating units. However, the iron ore and copper units supplied nearly 67% of total operating profits. Below, I briefly discuss the major operating units and how they performed in 2010 as well as expectations for 2011.
Anglo American is one of the largest producers of platinum, supplying the world with 40% of its needs. With being such a large producer, the company will certainly benefit from increasing platinum prices. However, as you can see from the operating numbers noted earlier, it is far from a pure play on the metal. If you are interested in a pure play on the platinum group of metals, you can invest directly in Anglo Platinum Ltd. (OTCPK:AGPPY) which is an approximately 80% owned subsidiary of Anglo American.
The company owns nine mines and is active in several joint ventures, all of which are located in South Africa. Production in the units of primary metals, platinum and palladium, increased 4.8% and 6.5% respectively in 2010. Rhodium saw a production decrease of 6%. Most of the company's mines expect production levels to remain in line or slightly higher in 2011.
The company expects to build on 2010 and have a strong year in 2011 with slight increases in production on top of higher platinum prices. Increasing demand for automobiles and jewelry should keep prices strong.
Anglo American's diamond exposure comes through its 45% ownership of De Beers. De Beers specializes in the exploration, mining and marketing of diamonds. The mining operations are located in Canada, Botswana, Namibia and South Africa.
Total diamond production for De Beers soared 34% in 2010. Revenues increased 57% and operating profits were up 673% due to stronger consumer demand in 2010 driven by China and India. It is expected that demand will continue in 2011 and continued increases in production are anticipated.
The company's exposure to iron ore is through its 62.76% ownership of Kumba Iron Ore which operates two mines in South Africa. Kumba exports a large percentage of its production. In Brazil the company owns 100% of the Mina Rio project, 70% of the Amapa Iron Ore System and 49% of the port of Acu. Also part of this unit is a 40% ownership in Samancor Manganese with mines located in both South Africa and Australia. Samancor is the world's largest producer of seaborne manganese ore.
The iron ore unit made up 38% of the group's total operating profit in 2010 as the unit saw operating profits jump 147%. This increase was fueled by a return to pre-2008 crude steel production levels in 2010. Production increased at all of the company's iron ore and manganese projects.
2011 is expected show continued increases in demand for crude steel production around the world even with an expected drop in the growth rate in China. The export controls in India should keep supplies of seaborne iron ore tight as well. The company anticipates production levels to remain consistent with 2010 levels.
Coal (Metallurgical and Thermal)
Anglo American is a major producer and exporter of metallurgical coal in Australia and has thermal coal operations in South Africa and Columbia. The metallurgical division has six operations and is the second largest exporter of metallurgical coal in Australia. The thermal unit operates nine mines in South Africa as well as a 27% interest in the Richards Bay Coal Terminal. In Columbia, the thermal unit owns 33% of Cerrejon Coal which owns and operates its own rail and deep water port facilities in addition to its mine.
2010 saw increased demand for metallurgical coal as steel production recovered in Asia. Production of metallurgical coal was negatively impacted by the record rainfalls in Australia at the Queensland mines. Metallurgical coal inventory levels hit record lows which should support prices in 2011 as the Queensland mines recover from the heavy rains. In spite of the challenges of weather, the metallurgical division recorded record production levels, increasing 16% over 2009 with tons sold increasing 30%. The company expects the strong trend to continue in 2011 led by new steel production capacity in India and China.
The thermal coal division had a mixed year. While prices were significantly higher, profits where hurt by a strong Rand and production was impacted by poor weather at the Columbian mine. However, the extreme weather experienced in countries with significant coal operations in 2010 should support prices well into 2011.
The company's copper operations consist of six projects in Chile, two projects in Peru and a 50% interest in the Pebble project in Alaska.
Record copper prices resulted in a 40% increase in operating profit for this unit in 2010 even though production slipped 7%. The company expects copper production to recover in 2011 due to a project expansion and improvements in plant throughput.
The company believes copper prices will be supported in the near-term due to healthy demand growth as well as insufficient supply. These conditions should bode well for the copper operations in 2011.
Nickel and Other Mining/Industrial Operations
The company has nickel operations in Brazil and Venezuela. Nickel currently provides for only 1% of the group's total operating profit. Production increased slightly in 2010 as operating profits soared due to much higher prices for nickel. The company is expecting nickel production to more than double in 2011 as a new project is expected to deliver its first production in the first quarter.
The company also has additional interests in building materials, steel, phosphate fertilizers, zinc, niobium and additional coal operations in Canada and Venezuela. Due to a restructuring in 2009, it is the company's intention to divest all of these additional interests.
For the investor looking for diversified exposure to commodities outside of gold, silver and oil, Anglo American is worth a look. The company made progress divesting non-core assets in 2010, resulting in net cash inflows of $2.8 billion. Two more divestitures in 2011 resulted in additional net cash inflows of $500 million. As a result, the company reduced its net debt in 2010 by 35% to $7.4 billion.
The company believes it has a strong pipeline of projects that will allow it to grow production 50% by the year 2015, led by larger percentage increases in commodities such as iron ore, metallurgical coal, copper and nickel. The company also has projects in copper, nickel and iron ore that are projected to come online mid-2011 through mid-2012.
Currently the stock of Anglo American trades on the Pink Sheets here in the U.S., but that should not be a reflection of its size or sustainability. The company previously traded on the Nasdaq until it delisted on August 1, 2009. Like many companies, it did not want the added expense of registering under the Securities Exchange Act. However, if this is a concern to you as an investor, BHP Billiton Ltd (NYSE:BHP) or Rio Tinto Plc (NYSE:RIO) may be options worth considering. Both companies trade on the New York stock exchange and have very large worldwide operations. Both BHP and RIO offer exposure to many of the same materials that Anglo American mines including iron ore, copper, diamonds and coal (both thermal and metallurgical). What I particularly like about Anglo American is its exposure to the platinum group of metals in addition to the other commodities.
Commodities and associated equities have had quite a run, so waiting on a breather to commit capital may be wise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.