Anglo American (AAL)

Record profitability

The major corporate reorganisation being undertaken at Anglo American (LSE, AAL) by new CEO Cynthia Carroll appears to be paying dividends, with the company announcing record underlying earnings of US$5.8 billion for the year ended 31 December 2007, which was up 5.3% on the previous year. The solid result was due to continued strong metal prices for the group's key commodities, whilst sales volumes were also higher.

With respect to business components, strong contributions came from Base Metals, Platinum, Ferrous Metals' core businesses and Industrial Minerals, which all achieved record operating profit in the year.

On the other hand Coal recorded lower operating earnings due to a sharp reduction in contribution from Coal Australia.

The contributions from both Paper and Packaging and Gold were lower than the prior year due to the demerger of Mondi in early July and the reduction of the Group's shareholding in AngloGold Ashanti from 41.6% to 16.6% during October.

We believe the company made good progress last year in line with its objective of becoming a leading focused mining company. To achieve the goal of focusing on its three commodity businesses - precious, base metals and bulks, further steps in the Group's restructuring were completed successfully during the year.

With respect to organic growth, Anglo has a very strong $12 billion project pipeline spanning several countries currently under development. Looking further out, an additional US$29 billion of projects are under consideration.

This month, Anglo American announced that it had entered into a memorandum of understanding (MOU) with China Development Bank. The MOU represents a long-term commitment to establish a strategic relationship to identify and develop a pipeline of natural resources projects in China, Africa and elsewhere.

In South Africa, the electrical power supply problems are causing disruption to mining operations across the country. At present, Anglo says it is difficult to accurately forecast the medium-term impact of power shortages on the company's businesses.

With respect to the global economic outlook for 2008, Anglo believes that global commodity demand remains strong and seems likely to remain so throughout the year. It says that global commodity supply continues to be constrained by skills shortages, rising capital and operating costs, longer permitting processes and strong exchange rates in many of the countries where key operations are located. Industry inventories are therefore likely to remain low and continue to underpin prices.

We continue to maintain our positive view on the outlook for the majority of Anglo's products, as we remain confident that any slowdown in the US economy will be offset by ongoing strength in Asia, particularly China and India.