(Updates with closing share prices in sixth paragraph.)
July 29 (Bloomberg) -- Anglo American Plc, part-owner of the world’s biggest platinum and diamond producers, said first- half profit rose 41 percent, missing estimates, as it confronts “very strong headwinds” on costs.
Underlying earnings climbed to $3.1 billion, or $2.58 a share, from $2.2 billion, or $1.84 a share, a year earlier, Anglo said today in a statement. That compares with the $2.63-a- share mean estimate of eight analysts surveyed by Bloomberg News and Anglo’s consensus of $2.59.
The benefit of rising metal prices, up 65 percent in the past two years on the LMEX London Metals Index, has been eroded by energy and labor costs. In South Africa, where power prices climbed 26 percent this year, workers are on strike to demand pay increases of more than 10 percent. Anglo copper sales fell 12 percent as rain curbed output across the southern hemisphere.
Anglo’s announcement of a 28 cent-a-share dividend today is “disappointing,” Peter Davey, head of mining research at SBG Securities, said by phone from London. He said he expected a payment closer to 40 cents. “The performance is a bit disappointing as well, especially in copper.” Bloomberg’s dividend estimate was for 29 cents.
The second half should be “stronger,” Chief Executive Officer Cynthia Carroll told investors in London today. Anglo has raised the price outlook for all the materials it produces, she said.
The stock fell 3.3 percent to 2,900 pence by the 4:30 p.m. close in London, the biggest drop in more than a month and bringing its decline this year to 13 percent. BHP Billiton Ltd., the world’s largest mining company, dropped 2.3 percent.
Anglo increased the estimate of its possible project pipeline to $85 billion from the $70 billion forecast in February.
“We’re very mindful of the capital project outlook that we have ongoing,” Carroll told reporters on a call today. “We’re spending about $6 billion in capex this year” and $6.2 billion to $6.5 billion in 2012 and 2013, she said.
The company has begun studies on expanding its Minas Rio iron-ore project in Brazil to produce as much as 90 million metric tons a year and will start its Los Bronces copper project in Chile late this year. It delayed a decision on its $3 billion Quellaveco copper project in Peru to 2012 from 2011.
The price of imports of iron ore by China, the world’s largest consumer of the steelmaking ingredient, rose 30 percent in the past 12 months to $175.40 a ton. Copper for delivery in three months climbed 37 percent to $9,845.25 a ton in London as demand from expanding Asian economies for the metal, used in plumbing and telecommunications equipment, increased.
Anglo, nearing completion of a program to sell non-core assets, reversed a decision to sell the Copebras fertilizer unit in Brazil as there is “strong demand on the agricultural side of the fertilizers,” Carroll said. “For the time being, we thought we’d capitalize on that. We’re seeing very, very high return and high demand, certainly for the near and medium term.”
The costs of energy and key raw materials increased “dramatically” in the first half, Carroll said.
“We’ve had very strong headwinds on the inflation side,” she said. “We’ve seen electricity prices increase by 35 percent in Chile, 26 percent in South Africa. We’ve seen sulphuric acid going up by over 100 percent. Obviously significant impact on the copper costs. We really don’t see much of that changing,” Carroll said.
Labor costs are rising 12 percent in Chile this year, about 8 percent or 9 percent in South Africa and 5 percent in Australia, Carroll said.
Anglo’s thermal coal production in South Africa was halted by a strike that started July 24. Miners have also stopped work at sites controlled by De Beers, the diamond producer 45 percent owned by Anglo, since July 22. Xstrata Plc, AngloGold Ashanti Ltd. and Royal Dutch Shell Plc are among companies to experience strikes in the country this month.
In Australia, Anglo faces a tax on carbon emissions that Carroll has said puts coal investments at risk. She’s also among leading opponents of a call for mine nationalization in South Africa.
Analysts who track Anglo American use underlying earnings, excluding special items and “remeasurements” that include some currency gains and losses, to assess performance.
--Editors: John Viljoen, Amanda Jordan
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