Anglo Coal recorded operating profit of $614 million (7% of Anglo American’s total operating profit from its core operations), 29% lower than the prior year.
Anglo attributed the fall to a significant reduction in Australia’s contribution, with port and rail constraints which reduced sales and increased demurrage costs, the adverse impact of the appreciation of local currency against the US dollar and lower average metallurgical coal prices.
“Despite the port and rail constraints experienced in Australia, production at the Australian mines was over 25 million tonnes, 3 percent above the prior year," Anglo said.
The fall in coal was more than overcome by improved volumes from ferrous metal, copper and zinc.
Chief executive Cynthia Carroll said Anglo currently had $41 billion worth of projects approved and under consideration. In that pipeline is a significant coal component with coal expansions in Australia and South Africa expected to deliver significant new production this year.
Expansions at Lake Lindsay and Dawson will increase Anglo American’s coal production at these mines by about 9.7 million tonnes per annum.
Approved expansion at Cerrejón in Colombia to 32Mtpa is on schedule for 2008, with further expansion potential being examined by Anglo.
The recently approved $505 million 6.6Mtpa Zondagsfontein project will form an important component of Anglo's plans to increase its South African coal production by 50% to around 90Mtpa by 2015.
Anglo's coal production will also grow through acquisitions. Late last year Anglo acquired a 70% interest in Foxleigh mine in Australia for $620 million.
Anglo has also been active on the international front, studying several energy schemes. It is looking at the Monash project in Australia to convert brown coal to ultra-clean diesel and the Xiwan project in China that is examining the feasibility of converting coal to gas, fuels and chemicals.
In February 2008, Anglo announced that it had entered into a memorandum of understanding with China Development Bank. A long-term commitment has been locked in to establish a strategic relationship to identify and develop a pipeline of natural resources projects in China, Africa and elsewhere.
Like other mining companies, Anglo was not immune to cost pressures; however, a number of initiatives meant Anglo was able to cap growth in its cash costs to 4% above inflation.
The company is introducing a value based management methodology in all its business units with a pilot project already completed in Anglo Coal.
Anglo was not overly confident in its outlook for 2008, saying the global economic outlook was "clouded by uncertainty".
“While it seems clear that US economic activity will be weaker in 2008 than in recent years, it is less clear how economic growth will be affected in the rest of the world, especially in those emerging markets whose growth has been largely responsible for the strong demand that has underpinned commodity prices,” Anglo said.
“In South Africa, the electrical power supply problems are causing disruption to mining operations across the country."
