Anglo American plc (Price: 1640p | Target: 1760p | Rec: Hold) Although at the operating profit level the result was in line with expectations, the bottom line was stronger due to financing and minority effects.

The company’s drive to “15% ROCE by 2016” seems to be on track.

Nevertheless, we are looking at a weaker 2H primarily due to lower iron ore prices, while net debt guidance has been re-iterated to peak at ca.

US$16bn over the next two years from US$11.5bn in June – unless asset sales take place.

We raise our target price by 8% but retain our Hold recommendation. * From a divisional performance perspective at the operating profit level, Diamonds were the clear positive surprise (26% of operating profit), followed by Copper (also 26%) where volumes at mid-year were above the full year guided run-rate.

Met Coal continued to struggle given low selling prices, barely breaking even, while Thermal Coal had a reasonably good performance (Coal combined 9% of op.

profit).

Iron Ore contributed 38% but this should reduce given lower prices in 2H14E while Platinum contributed 0% given the strikes. * Looking at the next 6-12 months, we expect a higher contribution from Platinum but it will likely be unable to offset the expected decline in Iron Ore.

The most significant positive in 2H14 could be first ore on ship from Minas Rio as guided, although the fear that this project would finally come on stream at a time of weak iron ore prices seems to be playing out. * Using spot prices would only have a moderate impact on Anglo’s NPV (-1%) and target price ( 5%), with iron ore lifting these metrics and platinum taking them down.

2015E EPS would drop 9% to US$1.82. * Risk: Downside risk from iron ore and platinum prices, upside risk if successful corporate restructuring (e.g.

Platinum) or disposals.

As we noted in our recent BHPB note, we think the sector is looking full vs.

consensus target prices but this could be overcome by the market’s apparent appetite to rerate miners
To access the full note please click here Analyst: Albert Minassian +27 21 416 1454
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