Anglo American Management Discusses Q2 2012 (H1 2012) Results - Earnings Call Transcript

Jul.27.12 | About: Anglo American (AAUKY)

Anglo American (OTCPK:AAUKY) H1 2012 Earnings Call July 27, 2012 4:00 AM ET


Cynthia Blum Carroll - Chief Executive Officer, Executive Director and Member of Safety & Sustainable Development Committee

René Médori - Finance Director, Executive Director and Chairman of Investment Committee

Paulo Castellari-Porchia - Chief Executive of Iron Ore Brazil

Seamus French - Chief Executive Officer of Metallurgical Coal

John Mackenzie - Chief Executive Officer of Copper - Chile

Bruce Cleaver - Co-Chief Executive Officer of De Beers SA


Jason Fairclough - BofA Merrill Lynch, Research Division

Peter Davey

Kieran Daly - Macquarie Research

J. Timothy Clark - Deutsche Bank AG, Research Division

Caroline Learmonth

Sylvain Brunet - Exane BNP Paribas, Research Division

Cynthia Blum Carroll

Good morning, everyone, and thank you very much for making it through the Olympic Games traffic to be here with us this morning. I'll start by giving you the highlights of what we have achieved this year. We'll also look at the operational performance, and René will take you through the financials. I'll then say a few words about the outlook and our disciplined approach to allocating capital to deliver sustainable shareholder value.

You have heard me talk about the journey we started more than 5 years ago to turn around performance across the group. As a result, we have a performance-driven culture and we strive for continued improvements across all areas of the business. We took the hard decisions early on to restructure our organization, and we've largely completed our divestment program to focus on the right commodities. We've generated almost $4 billion in proceeds, and during the first half of 2012, we absorbed more volatility in the external trending environment.

Prices eased from last year. René will show you a little later that this reduced operating profit by almost $2 billion. As a result, our operating profit was down by 38% to $3.7 billion.

Our decision to invest through the cycle, however, positioned us well to continue delivering volume growth at attractive returns. We've been very consistent about supporting and growing Tier 1 assets, and the projects we completed last year are ramping up well.

At the Los Bronces expansion, mill throughput is already at 92%, an industry-leading performance. Kolomela was completed on budget and 5 months ahead of schedule, and it will produce 6 million tonnes this year, exceeding the previous guidance of 4 million to 5 million tonnes. As I've often highlighted, these projects are very competitive from an operating and capital cost standpoint. Take the Los Bronces expansion project. Its capital intensity is more than 30% lower than a recently announced project in Chile. And beyond organic growth, we've simplified our minority ownership of De Beers by moving on our position of control.

And we've also acquired an additional 4.5% stake in Kumba, bringing our total holdings to almost 70%. Increasing our stake in Kumba aligns with our strategic objective of investing in large-scale assets that are long-life, low-cost profiles and have clear expansion potential. This acquisition is a low-risk acquisition, an immediately cash-generative transaction that will deliver long-term value. I'll shortly provide you with more detail on Kumba's continuing strong performance.

Turning to Mozambique, our decision to acquire a stake in Revuboè project aligns with our stated objective of building a global metallurgical coal business. Through this transaction, we're securing a high-quality metallurgical coal resource potential and position in the Moatize coal basin in Mozambique. The project's expected competitive operating cost makes this a compelling long-term opportunity.

I'll take you through our operating performance a little later, but before doing this, I wish to reiterate that every decision that we have taken and will continue to take has a single objective of maximizing shareholder value. We are achieving this through a disciplined and prudent approach to managing our business and allocating capital.

In the past few years, we've reduced our workforce worldwide by about 50,000 people. We have turned around performance across our group, including Metallurgical Coal and Iron Ore. And as a result, the majority of our operations are on the lower half of the cost curve, and we will continue to drive down cost. No matter where we are in the cycle, our focus is fixed on delivering value to our shoulders, and that's why, given the current volatile market, we're pleased to declare a dividend of $0.32 per share, an increase of 14%, and we are determined to sustain this level of dividend.

So before I turn to the operating performance, I'd like to say a few words on safety, our #1 priority.

We've made progress since the start of our journey towards 0 harm 5 years ago. Injury severity rates have fallen, and there's also been about a 56% reduction in fatality rates over that period. We've shown 0 harm is achievable in all parts of the organization, and about 94% of our operations are fatality-free.

Kolomela achieved over 25 million man-hours without an LTI. Minas-Rio achieved 30 million man-hours without an LTI. And since the start of the year, however, 7 of our colleagues have lost their lives, which I'm sure you would agree with me is unacceptable, and there is absolutely no room for complacency on safety. So we have reinforced the message in April at our senior leadership safety summit in South Africa, and we've tapped into our collective knowledge to find ways to share our best practice and to make what we do on a continuous basis that much more effective.

Turning to operating performance. Starting with Iron Ore and Manganese. Following a record profit in 2011, Iron Ore continued to deliver strong operational performance. Weaker prices and cost inflation have more than offset the operational gains, and despite strong headwinds, Kumba's margins remain healthy at 56%. Kolomela is a world-class iron ore operation. Some of you in Johannesburg can certainly attest to this. It showcases Anglo American's and South Africa's ability to deliver large, complex projects, and let me remind you of a few facts. Kolomela was completed on budget and 5 months ahead of schedule. Capital intensity is as much as 60% lower than other current Iron Ore projects. Cash cost delivered to China is around $55 per tonne, and the payback period is less than 3 years.

Now turning to our biggest project, Minas-Rio. We've continued to confirm that this is a high-quality iron ore resource with significant expansion potential, and despite the current challenges, Minas-Rio will prove to be a major contributor to the group for many decades to come.

This is one of the largest and most complex projects in the world and certainly in Brazil. It spans 527 kilometers from the Atlantic coast to the Minas Gerais state. And to deliver Minas-Rio, our team has been managing over 130 licenses. In fact, today, we've achieved close to 200, covering the mine, covering the beneficiation plant, pipeline and port. At the same time, we continue to make headway in meeting our license condition, and around 60% of 1,000 conditions have been completed already. These licenses and permits are granted by different government entities at the state level, at the federal level and at the municipal level. And despite this progress, we are experiencing delays, including legal interruptions and the presence of caves at the beneficiation plant site.

That said, we're not alone. As you can see, project delays are common in Brazil, impacting both industry as well as government. I discussed this last night with the President of Brazil, the Secretary of State and the Minister of Foreign Affairs. To place this into context, some 40 projects worth approximately $225 billion are currently facing delays averaging 24 months, and they include nongovernment infrastructure projects. We strengthened the projects and permitting teams reporting to Paulo Castellari, who's here with us today, and we transferred Amapa to OMI and freed up the team to focus on the task at hand.

However, until these hurdles are cleared, we cannot determine with confidence the date of first production. If we manage to clear all current bottlenecks by the end of the year this year and experience no further unexpected interventions, we expect to be in a position to ship first ore in the second half of 2014. The project budget is being reviewed following a detailed assessment of the schedule by a third party, and I'll provide an update by the end of the year.

All right. Turning to Metallurgical Coal. Record production was delivered in the first half of the year. Our Queensland business continued its journey of strong performance, particularly in our open cut mines, which delivered record production. This resulted from a proactive rain mitigation program and best-in-class equipment utilization.

We're also tackling cost inflation through disciplined cost reduction, and we've laid the foundation to outperform our peers. The 5 million-tonne Grosvenor project, the first of 4 underground hard coking coal projects, secured its mining license in the first half, and this project places us on track to more than double our hard coking coal production by 2020. These are high-quality, low-cost brownfield and greenfield operations leveraging existing infrastructure in our own backyard.

Thermal Coal continued to perform strongly despite weaker prices. Sales from South African operation performed strongly and were up 22%.

Zibulo is continuing to ramp up, and we are protecting our advantaged margin position by closing high-cost sections in South Africa. We've adjusted our export product mix in South Africa in response to changing demand, and in Colombia, Cerrejon delivered record production, up 18% on the previous half. Norman Mbazima has done a great job, and we look forward to Godfrey Gomwe, who's here with us this morning, taking performance to the next level, right, Godfrey, as Norman heads to Kumba.

Turning to Copper. As I mentioned earlier, the Los Bronces expansion is ramping up strongly. It's achieved 92% of nameplate capacity, and like others in the industry, however, the established part of the mine will continue to be impacted by declining grades.

Production from Collahuasi fell due to expected lower grades, adverse weather condition and a ball mill failure, and we expect some of these challenges to continue into the second half, with repairs to the ball mill due for completion by the end of August. However, overall copper production at Collahuasi is expected to gradually improve in the second half of the year, and this will be due to the business improvement plan initiated by the joint venture partners in June starting to take effect. We will be giving further updates to the market in due course.

In Peru, we successfully completed the Quellaveco dialogue table and we've reached agreement on social and environmental contribution to be made as part of the project. This was a first engagement process of its type ever undertaken in Peru involving government, the community and a mining company, and it's a clear demonstration of the value we place on engagement and the development of sustainable communities. We will continue to work with the Peruvian government to secure the outstanding permits prior to submitting the project for board consideration.

Turning to nickel. Nickel generated an operating profit of $58 million. Production increased by 80% following the completion of the Barro Alto project last year. Barro Alto is ramping up well, and its line 1 is achieving average feed rate of more than 70% of capacity. With improving feed rates, grade and recovery, we expect targeting full capacity in 2013.

De Beers delivered a sound operating profit of $250 million in the first half. After a very strong start to 2011, difficult trading conditions experienced at the end of that year continued into 2012. And despite these challenges, rough diamond price levels remain relatively stable. In the meantime, De Beers' mines continue to focus on eliminating waste stripping on -- they were focused on eliminating waste stripping and maintenance backlogs.

Infrastructure construction at Debswana's Jwaneng Cut-8 extension project is now 98% complete, and looking to the future, we see continued strong long-term demand growth for luxury goods, with compound annual growth up to 9%.

Chinese demand is still expected to show double-digit percentage growth this year alone, supporting moderately positive growth in global diamond jewelry sales; 2/3 of Chinese future wealth creation will come from Tier 3 and Tier 4 areas.

So we are well positioned with a diverse portfolio to take advantage of this late-cycle development. And I welcome Bruce Cleaver and Gareth Mostyn, who are members of the De Beers team, with us today, and I look forward to the De Beers acquisition reaching its conclusion shortly.

As you're aware, the platinum industry is facing significant headwinds. Economic uncertainty in Europe continues to have a negative impact on demand. Mining inflation has remained well above the South African consumer price index. As a result, operating profit is increased by 85%. In the short term, we expect demand to remain subdued, while in the medium to longer term, we expect the market to rebalance. Our response to the situation has been thoughtful and disciplined. We've made significant progress in Platinum since 2008. Productivity between 2008 and 2010 increased by 25%. Safety has significantly improved, and over 60% of our production is now in the low end of the cost curve. However, we are experiencing the same conditions as the rest of the industry, and while our margins of 11% is in line with the rest of the industry, we recognize that it is not acceptable.

In the short term, what are we doing? First, together with our joint venture partner, we placed the Marikana mine under care and maintenance. Second, we will go beyond our capital reduction target for Platinum and deliver a cut of almost $200 million by the end of the year. Third, we are reviewing our overhead cost, and we also continue to review the shape and the scale of the business. The key objective is to thoroughly assess the options available to establish a long-term portfolio with sustainable competitive advantages that will maximize value, and we will look at the entire value chain from resources to mining to processes, sales and marketing and people. And no option is off the table, and we will retain Platinum as a part of Anglo American. That is a starting point.

As I've outlined in February, this review will be completed by the end of the year, and as you're aware, Neville resigned as CEO of Anglo Platinum a week ago. Chris has been appointed to succeed him from the 1st of September, and Chris, as many of you know, brings a lot of experience. He’s spent 18 years in the Platinum business with deep knowledge of that business. So I'm looking forward to having Chris as an integral part of that review.

I'll now turn it over to René, who will take you through the financials.

René Médori

Thank you, Cynthia, and good morning, everybody. For the first half of this year, we are reporting an operating profit of $3.7 billion, a decline of 38%. Obviously, the major impact came from the decline in commodity prices that was somewhat mitigated by the additional production from the 3 projects that we commissioned in 2011.

The level of tax rate for the first half was 30.3%, below last year, 31.8%. For the full year, we are projecting a level of tax rate between 30% and 31%.

EPS of $1.38. The impact of the Mitsubishi transaction was $0.03 in the first half of this year and the conversion of the convertible, just $0.01.

Now if you turn to the operating profit waterfall, Cynthia already mentioned close to a $2 billion price variance. $1.8 billion, that's the exact number. That was predominantly in the second quarter, $1.4 billion in the second quarter as price started to decline at the end of March.

Volume increased, a positive volume variance, mostly driven by the ramp-up at Kolomela and the Los Bronces expansion offsetting the shortfall at more predominantly the mines in Chile, the existing mine at Collahuasi and Los Bronces, as well as in Platinum.

Looking at in more detail the various variances. First, starting with the price variance for base and precious. Platinum price in rand was, in fact, flat, around ZAR 20,000, with the rand decline almost offsetting the decline in U.S. dollar. Now that was the case up to end of June. Over the last few weeks, the basket price has declined to ZAR 18,000.

In the case of Copper, the realized price was $3.70 in the first half of this year compared to $4.22 last year. At end of June, we add 116,000 tonnes of copper, which were provisionally priced at $3.49.

Turning to bulk, iron ore price declined to $134 a tonne compared to $169 a tonne in the first half of 2011. That's, in fact, very -- that's the FOB price from South Africa, very similar, in fact, to the sea freight in China, with the benefit of the quality of Kumba products and the loan premium offsetting the freight cost between South Africa and China.

In the case of met coal, we had the benefit in terms of prices at the beginning of 2011 of the flooding in Queensland, so an average price last year of $251 a tonne, down to $191 a tonne in the first half of this year, a mix issue also in the first half of this year with the collapse of the Moranbah roof early -- at the end of 2011, which impacted the product mix.

Turning to the volume variance, except Platinum, all business units reported an increase in volume. Kumba copper and nickel got the benefit of the 3 projects which were commissioned last year.

In the case of Platinum, the sale volume was down 21%, and we had some problem earlier this year with the platinum converter following the annual methanol shutdown.

In the case of met coal, the volume was up 38% as we got the benefit of higher productivity but also the benefit of the weak -- the rain mitigating investment, which were implemented by the unit at the end of 2011 and early 2012.

Turning to cash cost, you remember that last year, we reported 8% real cash cost increase. So a key issue for us is as we see pressure on prices, how are the cost line reacting. We have seen a slowdown to 4% real cash cost increase. We expect a further decline in the second half. Our current projection is it will come down to 2% in the second half of 2012.

Turning to CapEx and net debt. CapEx of $2.3 billion in the first half. For the full year, we are projecting $5.5 billion. That's down $1.5 billion compared to our guidance at the beginning of the year, and Cynthia will cover later what does that mean in terms of capital allocation and our focus on reducing the level of capital intensity.

The level of net debt, $3.1 billion at end of June. If you factor the impact of the De Beers acquisition and the Revuboè acquisition in Mozambique on a pro forma basis, $10 billion. Our level of headroom at end of June stood at $19 billion, with $11.3 billion in cash and $8 billion of undrawn committed facilities. Thank you.

Cynthia Blum Carroll

Thank you very much, René. I'll now turn to the outlook and cash flow allocation. There is no doubt that the global economic environment has deteriorated, driven by the crisis in the Eurozone. And there is continuing uncertainty over the sustainability of the U.S. economic recovery.

China's slowdown in growth rate is also contributing to the fragile short-term outlook, but in the longer term, we continue to see resilient commodity demand, and this is driven by rising living standards in emerging countries, such as China and India, and infrastructure replacement in developed countries.

If current trends are sustained, by 2025, cities around the world will build the equivalent of the land mass of Austria in residential and commercial floorspace, and this will require cumulative investment totaling around $80 trillion.

As development in emerging countries shifts over time from investment to consumption, growth rates in steel demand should moderate, and the expanding middle classes in many emerging countries should boost consumption of platinum and diamonds as that transition occurs. 1 billion people are forecast to enter the consuming classes by 2025, and our diversified and balanced portfolio positions us well to take advantage of the structural changes in the global economy.

Of course, that's only part of the story. What's happening on supply is just as important. Prices will be underpinned by supply constraint, as well as difficulties producers face to deliver that supply. As I mentioned earlier, projects are facing significant delays as a result of increasingly complex planning and permitting regimes.

Developing and developed countries alike are seeking a larger slice of the mining cake, whether it's through joint ventures with mining companies, windfall taxes, increased royalties and in some cases, expropriating mining assets. Remaining resources are located in places that are harder to access and have underdeveloped or nonexistent infrastructure. At the same time, mining itself is becoming more difficult, more challenging, with existing operations facing greater declines and higher waste stripping.

In an industry that thinks in decades, not in years, capital allocation and balance sheet management required discipline and sound judgment. Our resilient and well-diversified portfolio is the outcome of adhering to a clear and consistent strategy. We have invested in the right commodities, in the right high-quality and low-cost assets at the right time, and we still have the best pipeline of growth options in the industry. Progress to date sees us well positioned to establish a new balance between rewarding our shareholders and investing in growth.

Shareholders have been very clear with us about the need to strike a balance, and we have listened and we've responded in a way that achieves both objectives.

Today, we increased our dividend by 14% despite a reported lower earnings, and we're determined to maintain and build on this new base through the cycle. It is a strong signal of our commitment to striking a balance between maintaining a strong investment rating, returns to shareholders and sequencing future investment in line with resulting funding capacity.

We recognize that future cash flow will be impacted by both economic uncertainty and higher capital and operating cost. To maintain our investment rating and dividend to shareholders, we will stage our investment.

As guided previously, CapEx budgeted for 2012, as René said, $7 billion is what we said at the beginning of the year. The revised guidance, as you will see from the bottom of this chart, will be $5.5 billion. In addition, we are deferring $200 million in exploration and early-study development expenses in 2012.

For 2013, we have set a CapEx funding target of $6 billion, and the 2013 funding target for exploration and early studies will be $600 million, down a further $300 million on 2012. Investment will be directed to the most value-accretive and lowest risk options.

As you know, we have the most diversified and balanced portfolio in the industry. That remains the case. Our operations and project pipeline are, in advantage commodities, at the lower end of the cost curve and offering attractive returns throughout the cycle. We will continue to capitalize on the value inherent in these options, and we will focus on projects aiming to deliver the highest sustainable returns within the shortest and the lowest risk timetable. Our investments will be sequenced to take advantage of all stages of development in emerging countries. In a world of developing -- diminishing Tier 1 assets and with mining becoming ever more challenging, our portfolio truly gives us a competitive advantage.

With that in mind, I'd like to conclude by reminding you that the journey we started 5 years ago has embedded a high-performance culture in this organization. We deliver on our commitments. Safety has improved. Non-core assets have been largely divested, and we've turned around our businesses. Our decision to invest through the cycle in 2008 positioned us well to continue delivering volume growth. The projects completed last year are ramping up well and generating strong cash flows.

That has been made possible because we have a clear and consistent strategy. As you know, we invest in commodities with the strongest long-term fundamentals and the most attractive risk return profiles. The bulk of our operations are at the lower end of the cost curve, and we will continue to drive down cost.

However, challenges remain. With respect to Platinum, clearly, there is no silver bullet. We've come a long way at Platinum, with an improved cost position. While our returns are in line with the industry, they are not acceptable. As I said earlier, they are not acceptable to us for the medium to long term, and we are working through the Platinum review to assess the optimal configuration of the portfolio. This will take time, and it will not be easy. And in light of the current volatile environment, discipline is paramount.

At a group level, we will also be disciplined and strike the right balance on our capital allocation. We will sequence investment in line with our funding capacity and focus on the most value-accretive and lowest risk options. We are responding to tough times, but let there be no doubt in anyone's mind that we're well positioned to get through them in strong shape.

That brings me to the end of my presentation, everyone. So we thank you for your attention. We're very happy to take questions. We've got the entire ExCo up with us at the front here, and I'm happy to shoot questions across to them. Let me just start here in London first and then move to South Africa and finally take questions on the phone.

Question-and-Answer Session

Cynthia Blum Carroll

So Jason, you're always the first one, Jason. Welcome.

Jason Fairclough - BofA Merrill Lynch, Research Division

Just 2 questions, Cynthia, please. On Brazil, first, on Amapa, we have a Cliffs saying this is a non-core asset for them. Is it a core asset for you? And then second, on Minas-Rio, how is it that your level of certainty has gone backwards here? I mean, for a while, you couldn't tell us, then you could. Now you can't tell us again.

Cynthia Blum Carroll

Okay. Let's talk about Brazil and Amapa. Amapa has done exceptionally well in terms of operating performance. We've taken that operation at a starting rate of about 200,000, 400,000 tonnes of iron ore up to close to 500,000. Where's Duncan now? You've got it. We're looking at over 500,000 this year, so really outstanding. We started also with cost of around $85 per tonne, and we're now down at the mine level to about $45 or so. I mean, it's a really fantastic position, and really, the team there is doing a great job. We wanted the Minas-Rio group to be absolutely focused on delivering that project. And it was for that reason that we decided to move it off into Duncan's OMI group. We have not taken a decision in terms of what we ultimately do with Amapa, and we're always looking for creation of more shareholder value. And that's the response to that question. In terms of Minas-Rio, look, we are in a very challenging country and environment. It's a developing country. It's developing its regulatory framework. As I said, there are 50 projects or so that have been put into the delay category representing massive amounts. We did emphasize this last night to the President, and she is certainly aware. And we have made incredible progress, where we've got -- where we -- I'm going to ask Paulo to stand up here in a minute. Where we've had access to land, we have actually surpassed the targets. So we've done superbly in that regard. We've got about 92% of land access on the pipeline. We've got -- we've moved about 80% of the earthworks around the mine and beneficiation plant. We've been moving along as much as we could when we have the permits, and as I said earlier, we have 1,000 conditions and we've satisfied 60. So Jason, we are making good progress, and this is a fantastic resource that we're sitting on, probably one of the most unique in the world. Having said that, we have been set back by these unexpected, unanticipated interruptions. You would know that Vale is in exactly the same boat. They have a number of them themselves that they're dealing with. We had -- as an example, we had the permit issued to us in March on the transmission line, and a month later, it was taken away from us and we were told that no, the state could not issue it. The federal government had to issue it. So we're working through all of that. So what I would say to you, I would reiterate that this is -- given the size, the complexity, of course, there are going to be issues that we face. We're working, I can promise you, avidly on every single one on a continuous basis. I mean, this team is absolutely outstanding. We had a third-party assessment, as I mentioned, a few weeks ago. I mean, they said -- these are experts in construction. They said these guys are doing a great job, but we've got the public authorities that are in an evolution mode or environment where they're just trying to set the framework and establish themselves and so therefore, those challenges are there. So these were not anticipated, Jason, by any means. And that's what others like Vale are also dealing with. Paul, why don't you stand up and just talk a little more specifically about the process and what we're doing about it?

Paulo Castellari-Porchia

Thank you. I think last time, at the end of the year, we actually shared with you 4 main bottlenecks that the project had, and those included, as Cynthia mentioned, the installation license for the transmission line, regulation around one particular cave that is situated in the beneficiation plant, access to land at the beneficiation plant as well. And all these 3 that we actually shared with yourselves 6 months ago, we actually have been able to clear them all. So just to elaborate on what Cynthia said, actually, the team has managed to, A, been awarded with the transmission line license. We have worked together with the authorities to define the regulation around caves and also managed to successfully acquire 2 very important pieces of land at the beneficiation plant. However, as Cynthia highlighted, we have been facing, not dissimilar to other players in the Brazilian mining industry, with legal stoppages. These have actually tackled exactly those same bottlenecks that we mentioned, and thus, progress was very difficult to be made. Cynthia also highlighted significant progress on the areas that we had access to land at the pipeline. Similarly, at the board, I mean, we have managed over the last 6 months to complete more than 20% from last 6 months at the filtration plant, for instance, where we have no blockages or any other of these challenges. So it's just really to highlight that we shared with you the 4 key bottlenecks that we had. These have been tackled. We have been suffering with the legal stoppages. We continue to work on them, as shared with you, intensifying resources on the legal side, on the licensing and permitting side. And again, wherever we had access, progress was made.

Cynthia Blum Carroll

I would also add, maybe you could talk about the progress that we've made at the community level in terms of endorsement, as well as at the state level.

Paulo Castellari-Porchia

I mean, starting with the municipality, we have 4 key municipalities where we operated at the beneficiation plant and the mine. I mean, our relationships there are very strong. Cynthia was there not too long ago, working, significant work around training, around the social investment there to just endorse the good work that we've been doing there. Along the pipeline, it's the same story and then at the board as well. At the state level, I think I mentioned to you that 6 months ago, in Brazil, the regulation around caves had not been defined. We have been working very closely with the government. This has been resolved in early this year that the regulations around caves was to be done at the state. This is also a result of good relationships with the environmental authorities at state level. And as Cynthia shared with you as well, we're also making very good progress around the profiling and making even the federal level, as we said yesterday, with ministers and President Dilma herself around the issues that we're facing with Minas-Rio.

Cynthia Blum Carroll

Thank you very much. Thank you, Paul. I need to just take one more question from the audience here and then turn to our friends in South Africa. So Peter.

Peter Davey

Peter Davey, Standard Bank. Following on from the Minas-Rio and what's been learned over the last 5 years and how regulatory things have changed, has a proper risk assessment been done in Mozambique, given you've put $0.5 billion into Revuboè now? You're into a country also in a state of evolution, has no logistics, so very similar situation to Minas-Rio.

Cynthia Blum Carroll

Yes. Very good question. Thank you very much, Peter. I mean, first of all, I'll just highlight that, I've shared this before and I'll repeat it, that met coal is certainly one of our favored core commodities with attractive long-term fundamentals. We've indicated to the market that we expect -- where is Seamus? We expect to increase our output quite significantly. Last year, we produced about 14 million tonnes of met coal out of Australia, and we're adding, along the way, our Peace River Coal from British Columbia very effectively. But the fact is although we're growing and we're progressing on Grosvenor and expect to reach about 45 million tonnes by 2020, we need to always be thinking about the next basin and the next phase of this business. And so we've been looking around the world at what opportunities there might be and where we can leverage our best-in-class performance out of Australia. And so we have been spending time on the ground the last couple years or so looking at Mozambique. Mozambique is obviously a neighbor to us in South Africa. We've been thinking about how do we leverage our expertise and our technical group out of South Africa and capitalize on the coal group out of Australia. And this is really what it's all about, Peter. If you look at this investment relative to some of our other peers' investments in Mozambique, I think you would note that it's a very, very good return investment on an investment or enterprise value perspective per resource. It's about 1.4 billion tonnes of resource. We can't say right now when exactly we're going to develop. That's really on the basis of development of infrastructure. I have seen the President. I have seen the Mining Minister, and Seamus has been down there a number of times, and many of our group members also are very familiar with Mozambique. So we think it's an opportunity to leverage a high-quality resource base with our expertise, okay? Thank you very much. Let me take a question from South Africa.

Kieran Daly - Macquarie Research

It's Kieran Daly from Macquarie Securities. I've got a 3-part question on the AngloPlats review. You say it will be at the end of the year before you have the results of that review. I just want to understand how you're going to inform the market on the results of that review. When is it going to be? Is it going to be full year results next year? Is it going to be at the end of the year? So I just want to understand that a little bit. Secondly, you say everything is under review, but Atlatsa Resources came out yesterday, previously Anooraq, and said that they feel fairly comfortable, effectively implied they feel fairly comfortable with their asset in the AngloPlats' stable. That's Bokoni. So I just want to understand whether you've actually made any decisions on some of the assets at this stage. And then lastly, it's a review, but are you, in the process of this review, talking to some of the key interested and affected parties here, i.e. unions, government, et cetera, JV partners? Are you talking to them very proactively as part of this review so when you get to the end and you've made your decision as to what you need to do that you actually have a realistic implementation plan?

Cynthia Blum Carroll

Yes. Well, Kieran, we may have to spend a day with one another to talk about all of this. The fact is you're familiar with the Platinum business. It's pretty complex. We've got 12 operating mines. We've got 7 joint ventures. We've got 58,000 people. We've got -- if you multiply that by about 10, the numbers of people that we impact on a continuous basis is massive. What we have also said at the outset is that Platinum is a key differentiator for Anglo American, and we believe in the fundamentals, and we believe that the outlook for demand in terms of growth is in the neighborhood of 4% to 5% medium to longer term. And in terms of supply growth, we're talking about something around 3%, 3% to 4%. So we do think that there will be a gap that does develop over time in terms of the ability of the industry to satisfy the longer-term demand. Now the other fact, as you know, is we're the ones sitting on the optionality of resource. We've got the choices that we can potentially make, and that's why all of this does take time in terms of the complexity of the business and the time to debate all the issues. Furthermore, with the backdrop of South Africa, where there are calls for job creation, people looking to take positions with respect to the labor, so competing labor unions. And you saw that with respect to Impala at the start of the year, where they lost about 150,000 ounces. So we've got to be very thoughtful about how we take this and how we think about all the options and once we make a decision, how we then share those decisions. They will not be taken alone or independently. So now your question about how do we inform the markets, we've got to get Chris onboard. Where's Chris? Chris is all webbed up and excited to go, but he's got to finish some things at Kumba. He'll be in the job, as I said earlier, on the 1st of September. He's got to get his feet on the ground. He's going to be the one, at the end of the day, at the helm of moving this forward and taking those decisions into the implementation mode. So we need to give him some time. It will -- no decisions have been taken yet on where we are. No decisions on asset. I'll remind you again we've taken out 60,000 ounces. We are looking at where those high-cost operations are and what we can do with them, and that's really the mode that we're in right now. But nothing is on the table, and as I said, it's a broad-ranging review, from all the way up to the resource base, all the way down to sales and marketing. And that's about all I'm going to say right now. I'm not going to get into any discussions that we're having with stakeholders or any other groups because, as I said, there's a lot involved, okay? Other questions in South Africa?

Kieran Daly - Macquarie Research

But you are having discussions -- you are having those discussions with stakeholders as part of the process, I imagine. And then secondly, back to my first part of the question, can you give us an idea when you can tell investors, shareholders in Anglo American what you've decided to do? Obviously, whatever you decide to do is going to take time and a lot of effort, but when can you give us an idea of what the shape of that is?

Cynthia Blum Carroll

I think -- I mean, I said to you at the start of the year that this would take time. I said towards the end of this year, and that's still the game plan. So we'll see what Chris has to say about that, but I'm aiming towards the end of the year when we can indicate, we can share some of our learnings and findings and decisions that we take with the market. Okay? Other questions from South Africa.

J. Timothy Clark - Deutsche Bank AG, Research Division

It's Tim Clark from Deutsche Bank. Two questions, please. First of all, on metallurgical coal. A very pleasing production result, but I noticed just on a total unit cost basis, the costs were up about 12-ish percent for the half on last year's full year numbers. I wonder if Seamus could talk to us a little bit about costs and what's happening to met coal costs at the moment. And then a second question, please, is about Collahuasi and Los Bronces' existing operations. We were guided by IR to sort of 770,000 tonnes of Copper production for the year, up until about April. The run rate looks much lower than that, in the sort of 680,000-type numbers. And there's quite a few issues going on with the ball mill and grades and weather, and I wonder if we could just get some inputs on the guidance for when we expect grades to recover or what the profile of grades and the profile of production looks like at the moment for the big existing operations.

Cynthia Blum Carroll

Okay. Well, I'm not going to answer all these questions. I'm going to pass them off to my good friend, Seamus, who can talk about the met coal business. And you asked about production and unit cost.

Seamus French

Thanks, Tim. The half year was a story, really, of 2 quarters. René mentioned the Moranbah drift issue we had in December of last year. The rehabilitation of that took us through to February, so recommissioning of the Moranbah mine started in February and effectively went through to April. In parallel with the recommencement of production in February, we completed a full life of mine rehabilitation, not just of the conveyor drift but also of the equipment drift as well. So we've actually upgraded both drifts to a life-of-mine standard for the remaining life of the Moranbah mine. But it gave us 2 very different quarters. It impacted 2 things. Firstly, product mix. So product mix for the first half of the year in terms of total export production was 50% hard coking coal and 29% PCI. That will swing around in the second half of the year to about 57% hard coking coal and 20% PCI. The second thing it impacted on, obviously, was unit cost. Average for the year Australian -- for the half year Australian operations FOB cost, excluding royalties, was $111, but the first quarter was $129 and the second quarter was $97. So 2 very different quarters. The rest of the year, we're looking at probably mid 90s. Again, the carbon tax does kick in from July, so there's impact there, a few dollars a ton. We're looking at an average in the mid 90s for the second half of the year. So the second quarter was very much what we call a normal quarter, but the first quarter, very much skewed by that ramp up at Moranbah. In our costs, too, we have some exceptional items relating to the ongoing divestment of Callide, which we would hope are one-offs in the first half of the year as well.

Cynthia Blum Carroll

Thank you very much, Seamus. Why don't you hand that microphone to John and he can talk about Collahuasi and Los Bronces?

John Mackenzie

Thanks, Tim. Maybe to start with the somewhat simpler of the 2 operations, Los Bronces, first of all. Just to start, I think the ramp-up of the Los Bronces project has been a huge success. We're sitting sort of with throughput rates which are sort of, on a day-by-day basis, we’re actually exceeding designed capacity, and on a month basis, we got up to 92% of throughput capacity to date. I think the challenge that we've got at Los Bronces is the state of mine development. Whilst the overall -- you asked about grades. The overall grade for the deposit remains exactly as we have forecasted. Accessing those grades obviously depends on having sufficient flexibility with sufficient mining development to be able to get to those. And in terms of keeping what's now a plant that requires more than double the amount of feed fed, we've dropped the grade somewhat in terms of making sure that we maintain the feed rates. Obviously, in the longer term, the key plan is to improve upon the mine development, get to a point where we're back to having sufficient flexibility to be able to do the selective mining and be able to access those higher-grade areas sort of in the nearer term. Moving on to Collahuasi, there are a number of parts to the issues at Collahuasi. I think the first was 2012 was always expected to be a tough year in terms of grades. And those grades are, as we expect them, we’re moving through a lower-grade zone of the mine. I think from last year, we had 1.03% copper. The grade for the year-to-date is 0.79%. That obviously has a very major impact both on production and on unit cost. But obviously, there have been some other issues as well. We were impacted in first few months of the year by a very severe altiplanic winter. The whole northern part of Chile suffered severe floods, and we had the pit flooded and various sort of damage to various bits and pieces of infrastructure during that, which caused an impact. Secondly, in March, we had a failure or a crack appear in one of the ball mills. That crack has taken some time to repair. Ultimately, it's going to require the replacement of that shell, but what we're doing is a repair which can last up until that new shell is constructed. So from March, the expected completion date of that ball mill repair is the end of August, and that obviously has had an impact on our overall throughput. The third factor that’s impacted on us is recoveries, and because of the area in the mine where we're going through having lost the grade, I mentioned that 0.79% is total copper; it's at higher percentages than we had expected of what's called soluble copper so nonrecoverable copper in our floatation plants. Our recoveries have dropped as well. Now certainly, as one of the joint venture partners of Collahuasi, we've not been satisfied with this performance. This is not the first year we've suffered issues with infrastructure and issues with production, and so what we actually decided to do as sort of -- as a joint venture partners is really engage in a very intensive business improvement plan. We've put in place 2 senior executives, 1 from ourselves, 1 from Xstrata, as joint CEOs for a period of 3 to 6 months. We've put in 30 specialists from the shareholders to actually support in -- I think we've done a very good diagnosis of what the challenges are. We've performed an operational review towards the end of last year. That's given us a very clear guideline as to where the opportunities lie for improvement. What has been lacking at Collahuasi is the capacity to implement a lot of those things, and so with this team that we've put in place, we do have high expectations that they will be able to resolve a lot of these underlying challenges and set Collahuasi on the path to achieve the sort of performance that we expect.

Cynthia Blum Carroll

Okay. Thank you very much, John. I'm now going to turn to the phone and ask our group, our team back there to give us those questions from the phone.


[Operator Instructions] We have 2 questions lined up. The first one, from the line of Caroline Learmonth from ABSA Capital.

Caroline Learmonth

Could you comment, please, on what the level of cash is held in South Africa on a pro forma basis after having bought the Kumba shares? And could you also comment on your intentions going forwards on Kumba and what the factors would be in terms of any decision to buy further Kumba shares?

Cynthia Blum Carroll

Okay. Rene, I haven't asked you yet to answer a question so it's your turn.

René Médori

Thank you, Cynthia. The level of cash at the end of June in South Africa was $800 million, and we have completed the accretion of the Kumba share by the middle of June.

Cynthia Blum Carroll

And we don't comment on whether we're going to buy any more shares or not. Okay, other questions from the phone?


Next one is from the line of Sylvain Brunet from Exane BNP.

Sylvain Brunet - Exane BNP Paribas, Research Division

Sylvain Brunet with Exane BNP Paribas. Two questions, please. The first one, with a new timeline now at Minas-Rio, could you please update us on the sequence for startup costs? Should we expect a delay in the startup costs as well? And my second question is on the outlook for diamonds going into the second half, if you could share with us any outlook there, please.

Cynthia Blum Carroll

Okay. Well, I thank you very much for those questions, and given the fact that I've got Bruce Cleaver over here and he's very intimately familiar with the diamond industry and with the market dynamics, Bruce, I'll ask you to make a comment. Before you stand up, maybe somebody can hand him a microphone. Just in terms of the Minas-Rio, you're asking about the timeline for Minas-Rio. As I said, right now, we're looking -- because of these interruptions, as I'll repeat, if we don't have any other issues beyond the end of the year and we can clear the ones that we've got right now that Paulo’s dealing with, then we look at second half of 2014 for first ore on ship. And as far as cost go, we'll give you guidance towards the end of the year on that. Bruce, you want to stand up and comment on diamonds? And then we're going to have to close.

Bruce Cleaver

Thanks, Cynthia. Consumer demand in our core markets of the U.S. and China remains reasonably robust. So we're pretty comfortable that absent another global shock at the retail end, consumer demand does remain pretty fundamentally good. Not as good as last year, but the U.S. is holding up very well. And China, although it has slowed down, is still predicted to do double-digit growth in the consumer retail space.

Cynthia Blum Carroll

Very good, Bruce. Okay, everybody, we thank you again for joining us. Thank you from South Africa. Thank you, those of you who have joined us by phone, and thank all of you in London. Thank you.

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