Lower commodity prices and production volume slammed Anglo American's interim results, released last week. Operating profit fell to US$2.1 billion from the $6.2 billion posted in the first half of 2008. Anglo Platinum posted particularly weak operating results; its operating profit fell from $1.5 billion to a mere $8 million despite a 10% increase in platinum production. The firm's average realised platinum price during the period was $1,086 per ounce versus $1,906 during the first six months of 2008. Platinum prices have plunged as carmakers around the world have cut production. Fewer cars being built means less demand for catalytic converters, the chief end market for platinum and palladium.
Anglo has made significant progress on its cost-cutting programme. Last year, the company presented a proposal to save $2 billion over the next three years by centralising some of its operations and reducing its workforce by 11%. Anglo managed to save $450 million in the first half of 2009. We think the firm emphasised its cost-saving measures in part to give investors confidence in its ability to execute its operational plans. At the end of June, the company rejected an offer for a merger of equals from Swiss miner Xstrata, which claimed the merger would result in an additional $1 billion in cost savings. While we wouldn't rule out an acquisition should Xstrata up the ante, we think the odds of Xstrata sweetening the pot are slim, given its massive debt load and exposure to ailing nickel and zinc markets.
Annie Sorich is a Morningstar equity analyst based in the United States.
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