Strong commodity prices drove excellent full-year results at Anglo American (AAL), which reported a 34% increase in sales (including Anglo's share of associates revenue) to $32.9 billion and a healthy EBITDA margin expansion to 36% from 28%. Copper and iron ore continued to be the biggest bottom-line contributors, but improved results from platinum, which saw operating profit swell from $32 million in 2009 to $837 million in 2010, were particularly noteworthy. While dramatically higher platinum prices helped (up 34% year over year), improved labour productivity played a key role as well. Anglo reported labour productivity came in at 7.1 square meters (m2) per employee per month, up from 2009's 6.3 m2 and 2008's 5.7 m2. As we've previously noted, labour productivity is critical for the platinum business given the fact that, including contractor expenses, it accounts for roughly 50% of the unit's cash costs. According to Anglo, the resulting operational efficiencies mean 80% of the firm's platinum production now sits on the lower half of the industry cost curve. While certainly impressive, we expect increasingly challenging geology (see our Jan. 4 note) will ultimately limit the relative cost improvements Anglo is able to realise through operational measures.
Looking ahead, prevailing prices for Anglo's key commodities--copper, platinum, iron ore, and coal--point to an even stronger 2011, which should facilitate Anglo's announced $6.5 billion capital spending programme for the year with minimal recourse to the capital markets. Indeed, strong commodity prices and asset sale proceeds ($2.8 billion in associated net cash inflows in 2010, $500 million year to date 2011) give Anglo ample liquidity heading into 2011: $6.1 billion in cash and $11.1 billion in undrawn borrowing capacity as of Dec. 31, 2010, in our view setting the stage for a healthy dividend increase from 2010's declared $0.65 per share.
Daniel Rohr, CFA is an equity analyst with Morningstar.
