Anglo struggles to match rivals

ANGLO American has revealed the big distance it still has to travel to close the gap on peers Rio Tinto and BHP Billiton when it unveiled flat profits, an ever-lazier balance sheet and little reduction in its heavy reliance on South African operations.

The mining giant's heavy exposure to depressed base metal prices, lower platinum prices and weak diamond sales at affiliate De Beers more than offset better times for coal and industrial minerals. The price fluctuations combined with some asset sales and corporate restructuring to leave underlying profits 11% lower at $1.77bn (£1.25bn) in the year to 31 December.

Finance director Tony Lea said the net impact of the price movements on profits was minus $100m, leaving a 4% rise in headline earnings from continuing business after allowing for the restructuring and disposals. He described the result, which was at the top end of market expectations, as 'very pleasing in terms of a challenging environment'.

The result came just hours after Anglo revealed that chairman-elect Goran Lindahl had quit its board amid the scandal over pension payments he received from engineering group ABB. This is a major blow to Anglo, which had hoped Lindahl would put a greener and more socially-sensitive face on its business. Instead, Julian Ogilvie Thompson, seen in the City as in the old guard of the South African mining industry, will remain chairman.

Anglo echoed the recent warnings of its peers by saying the outlook remained difficult. 'The central bankers seem to have become much more upbeat but we have to be much more cautious,' Lea said. 'Japan is miserable and that is very important to us.'

His comments raise further questions about whether the gains of 50% or more seen in mining shares in the past six months are justified by the earnings outlook. Many industry analysts believe a significant recovery in commodity prices is too far away to warrant such substantial rises and the value of the cyclical upswing is already factored into share prices. 'Until surplus production capacity is eliminated people won't start increasing capacity,' Lea said.

Anglo's gearing fell from 17% to only 12% during the year as the group reduced debt and struggled to find suitable acquisitions. Lea said the company had a war chest of several billion dollars, and while it had considered a capital return in the past, it was 'not a priority at the moment'.