ANGLO_AMERICAN(AAL.L)：ONE_STEP_CLOSER_TO_DE-RISKING_MINAS_RIO-2013-0.ppt

3600,3200,2800,2400,2000,deutsche bank markets research,rating buy europe united kingdom,company anglo american,date 30 january 2013 breaking news,metals & mining metals & mining,reuters aal.l,bloomberg aal ln,exchange ticker lse aal,price at 29 jan 2013 (gbp) price target (gbp) 52-week range (gbp),1,929.50 2,260.00 2,910.00 - 1,664.00,one step closer to de-risking minas rio management guidance in line with expectations, lower risk positive anglo has announced the results of the minas rio review and has increased capex us$8.8bn (incl. (us$600m contingency) and has taken a us$5bn (us$4bn post tax) impairment of the asset, cash costs are also confirmed at us$30/t real and first production is expected before end 2014. the guidance was in line with our forecasts, but with more disclosure on tax shields, hence a modest npv uplift. the increase in certainty and step closer to de-risking the project is positive. upside to our valuation leads to our buy recommendation.,grant sporre research analyst (+44) 20 754-58170 rob clifford research analyst (+44) 20 754-58339 key changes,tim clark research analyst (+27) 11 775-7268 ,outlining the key expectations for minas rio post the review anglos minas rio review included an increase of capex to us$8.8bn (incl us$600m contingency), a write-down of us$5bn (us$4bn after tax), first production maintained at the end of 2014, cash costs of us$30/t (real) and four,target price price/price relative,2,200.00 to 2,260.00,2.7%,major potential areas in the short term which if not delivered would lead to a further delay (and cost increase in all likelihood). we find the assumptions generally in line with our forecasts but highlight the greater level of disclosure and certainty is positive for anglo. we value the project today (including phase ii&iii) at us$2.87bn (up from us$1.7bn), well below the cost incurred to date,(us$9.6bn) and the written down carrying value (us$5.6bn).,1600 2/10,8/10,2/11,8/11,2/12,8/12,impairment model highlights likely parity to fines assumed for pellet feed we have been concerned that the pellet feed concentrate product from minas,anglo american ftse 100 index (rebased),rio is largely untested from a pricing point of view on the global seaborne market. using managements impairment model assumptions we have backed out that no discount is most likely being assumed, implying that the higher grade (68%) and low contaminant levels (alumina and silica) are offset by the,performance (%) absolute ftse 100 index,1m 1.3 7.0,3m 0.7 9.4,12m -28.5 10.6,concentrate nature of the product, implying a. grade adjusted fines price. price target nudged up to 30000 sac, 2260p; valuation & risks our price target reflects a valuation taking into consideration both dcf over life-of-mine (9.5% wacc - beta 1.25, erp 4.5%, rf 5%, cod 6% on a through- the-cycle target gearing of 30%) for core asset valuations and market values or peer group multiples for non-core assets. we apply a 0.9x nav multiple to reflect managements performance relative to the broader metals and mining sector. risks include stronger-than-expected operating currencies (rand, a$) and lower commodity prices, in particular pgms, copper and iron ore. more specific risks include further cost increases or delays at minas rio, the implementation risks of the platinum operational review and delays to project approvals. forecasts and ratios,year end dec 31 ebitda (usdm) db eps (usd) p/e (db eps) (x) ev/ebitda (x) yield (%),2010a 10,532 4.01 10.3 4.9 1.6,2011a 11,406 5.06 8.9 5.6 1.7,2012e 6,836 1.75 17.4 7.2 2.6,2013e 8,253 1.94 15.7 6.5 2.6,2014e 8,991 2.23 13.7 6.4 2.6,source: deutsche bank estimates, company data _ deutsche bank ag/london deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 072/04/2012.,30 january 2013 metals & mining anglo american,model updated:29 january 2013,fiscal year end 31-dec,2009,2010,2011,2012e,2013e,2014e,running the numbers,financial summary,europe united kingdom metals & mining anglo american,db eps (usd) reported eps (usd) dps (usd) bvps (usd) weighted average shares (m) average market cap (usdm),2.08 1.97 0.00 21.7 1,202 33,937,4.01 5.23 0.65 28.4 1,206 49,759,5.06 5.10 0.74 32.3 1,210 54,238,1.75 1.44 0.78 32.9 1,244 37,824,1.94 1.94 0.78 33.0 1,284 39,040,2.23 2.23 0.80 34.5 1,284 39,040,reuters: aal.l,bloomberg: aal ln,enterprise value (usdm),40,223,51,756,64,162,48,917,53,464,57,722,valuation metrics,buy,p/e (db) (x) p/e (reported) (x),13.6 14.4,10.3 7.9,8.9 8.8,17.4 21.1,15.7 15.7,13.7 13.7,price (29 jan 13) target price 52 week range market cap (m),gbp 1,929.50 gbp 2,260.00 gbp 1,664.00 - 2,910.00 gbpm 24,003 usdm 37,824,p/bv (x) fcf yield (%) dividend yield (%) ev/sales (x) ev/ebitda (x) ev/ebit (x),2.01 nm 0.0 1.9 9.1 14.7,1.84 5.0 1.6 1.9 4.9 6.0,1.14 6.0 1.7 2.1 5.6 6.8,0.95 nm 2.6 1.7 7.2 10.7,0.92 nm 2.6 1.5 6.5 9.0,0.88 nm 2.6 1.5 6.4 8.6,company profile,income statement (usdm),anglo american plc is a globally diversified mining company. it has interests in diamonds, platinum, coal, copper, nickel, zinc, iron ore, and industrial minerals. the group has operations and developments in africa, europe, australia, and south and north america. the company first listed in london in 1999, and has been disposing on non-core assets to create a more focused mining group. anglos diamond and platinum assets differentiate it from the other diversified miners. price performance 3600 3200 2800 2400 2000,sales revenue gross profit ebitda depreciation amortisation ebit net interest income(expense) associates/affiliates exceptionals/extraordinaries other pre-tax income/(expense) profit before tax income tax expense minorities other post-tax income/(expense) net profit db adjustments (including dilution) db net profit,20,858 4,432 4,432 1,692 0 2,740 -407 84 1,612 0 4,029 1,117 487 0 2,425 144 2,569,27,960 10,532 10,532 1,866 0 8,666 -139 822 1,579 154 11,082 2,809 1,575 0 6,698 -1,568 5,130,30,580 11,406 11,406 1,967 0 9,439 183 977 183 264 11,046 2,860 1,753 0 6,433 -49 6,384,29,119 6,836 6,836 2,266 0 4,570 -523 485 -39 0 4,493 1,385 1,257 0 1,851 396 2,247,35,632 8,253 8,253 2,337 0 5,916 -773 560 0 0 5,703 1,654 1,551 0 2,499 0 2,499,37,241 8,991 8,991 2,296 0 6,694 -1,015 678 0 0 6,357 1,881 1,603 0 2,872 0 2,872,1600 feb 10 aug 10 feb 11 aug 11 feb 12 aug 12,cash flow (usdm),cash flow from operations,4,087,7,727,9,362,4,890,6,419,7,164,anglo american margin trends 40 30 20,ftse 100 index (rebased),net capex free cash flow equity raised/(bought back) dividends paid net inc/(dec) in borrowings other investing/financing cash flows net cash flow change in working capital,-4,561 -474 50 -472 -371 1,282 15 0,-5,216 2,511 -64 -919 -788 1,882 2,622 0,-6,126 3,236 -347 -2,222 4,667 299 5,633 0,-5,620 -731 22 -2,085 2,081 -6,587 -7,300 0,-6,731 -312 22 -1,937 0 -373 -2,600 0,-7,756 -592 22 -1,933 0 -1,015 -3,519 0,10,09,10 11 ebitda margin,12e,13e ebit margin,14e,balance sheet (usdm) cash and other liquid assets tangible fixed assets goodwill/intangible assets,3,269 35,198 3,118,6,401 39,810 2,695,11,732 40,549 2,682,4,635 40,887 2,627,2,035 44,881 2,627,516 50,340 2,627,growth & profitability,associates/investments other assets,6,899 7,824,8,915 8,835,8,804 8,675,16,402 10,122,16,842 11,280,17,448 11,520,40 30 20 10,25 20 15,total assets interest bearing debt other liabilities total liabilities,56,308 14,506 13,733 28,239,66,656 13,581 15,104 28,685,72,442 12,873 16,380 29,253,74,672 14,228 16,282 30,510,77,665 14,228 17,141 31,369,82,451 16,228 17,363 33,591,0 -10 -20 -30,09,10,11,12e,13e,14e,10 5 0,shareholders equity minorities total shareholders equity net debt,26,121 1,948 28,069 11,237,34,239 3,732 37,971 7,180,39,092 4,097 43,189 1,141,40,889 3,273 44,162 9,593,42,421 3,876 46,296 12,193,44,300 4,560 48,860 15,712,sales growth (lhs),roe (rhs),key company metrics,solvency,sales growth (%) db eps growth (%),-20.7 -51.9,34.0 92.3,9.4 26.4,-4.8 -65.5,22.4 11.0,4.5 14.9,50 40 30,70 60 50 40,ebitda margin (%) ebit margin (%) payout ratio (%) roe (%),21.2 13.1 0.0 10.5,37.7 31.0 11.7 22.2,37.3 30.9 13.9 17.5,23.5 15.7 52.5 4.6,23.2 16.6 40.1 6.0,24.1 18.0 35.8 6.6,20 10 0,09,10,11,12e,13e,14e,30 20 10 0,capex/sales (%) capex/depreciation (x) net debt/equity (%) net interest cover (x),22.1 2.7 40.0 6.7,18.9 2.8 18.9 62.3,20.3 3.2 2.6 nm,19.3 2.5 21.7 8.7,18.9 2.9 26.3 7.7,20.8 3.4 32.2 6.6,source: company data, deutsche bank estimates,net debt/equity (lhs) grant sporre +44 20 754-58170 page 2,net interest cover (rhs) ,deutsche bank ag/london,30 january 2013 metals we are now assuming us$8.8bn. an impairment of us$5bn (us$4bn after tax). the assumptions in the review were capex of us$8.8bn, cash costs of us$30/t, a real discount rate of 6.5% and ramp up of production from end 2014, we have replicated the assumptions of this review and think that given the lower discount rate, higher long-term price and marginally lower costs that the result is reasonably consistent with our modelled assumptions. if anything our analysis suggests that management is not expecting to receive a pellet feed discount compared to fines on an equivalent basis given lower contaminant levels (silica and alumina) and the higher grade. we are assuming a 5% discount to fines prices. given, the current project plan, production is still expected before end 2014 (we are assuming 2q15). confirmation of cash costs at us$30/t (mining us$9, processing us$8, pipeline us$2, de-watering and other us$5, port us$5) in real terms, we are assuming us$40/t in 1h15. confirmation of the tax benefits being us$1bn after which a 30% allowance was assumed, corporate tax is at 34%. anglo is allowed to build up a tax asset on both the acquisition cost and the capex spent on the project. the long-term price assumed in the impairment review was us$80/t on an fob 62% basis, marginally higher than our us$72/t assumption but lower than feared after management comments and the acquisition of the additional stake in kumba for value where we backed out a long-term price above us$100/t. the key short-term risks include the cave 1 suppression (management seems confident), the transmission line land release (23% released since dec), the closure of the tailings dam to collect two seasons rainfall (our impression that this requirement before may was the most critical of the short-term risks), and the front 1 access for the pipeline where there is access sharing agreement being sought with two parties. though nothing can be guaranteed our impression is one of a more manageable licensing and bottleneck situation than previously announced. to date the beneficiation plant is 53% complete, the pipeline is 66% complete, the port is 52% complete, and pre-operations (mining) is 46% complete. there are 16,900 people on site working on the various sections of the project.,deutsche bank ag/london,page 3,2 of 4,0,78,30 january 2013 metals & mining anglo american the company outlined a de-bottlenecking option, which would take the production to 29.5mtpa, at an additional us$1.3bn of capex. we include this de-bottlenecking in our valuation. the following table summarises the progress that the company has made on the project in 2012. over this time that impression of the project in the market is one of material uncertainty and given the capex was under review and that there were cave and transmission line injunctions and hence limited progress. we think that the market will be somewhat surprised at the progress in a time when our and the markets impression was one of relative stagnation. figure 1: progress in last 12 months,beneficiation plant,at the end of 2012,at the end of 2011,earthworks nearing completion concrete poured release of caves for construction tailings dam land access three legal injunctions cleared transmissions line installation licence towers available / in construction pipeline track released for construction landowners released filtration plant and port overall completion of filtration plant mechanical erection at port transmission line towers installed for port licences and permits pending licences and permits,92% 79,000m 4 of 4 (september 2012) 21 of 21 secured yes yes, december 2012 yes, 43 402km; 247km installed 95% 77% 65% 85% 17 (to be issued up to foos),79% 29,000m 8 of 21 secured no no, outstanding 219km; 201km installed 88% 45% 11% 41%,source: company presentation,deutsche bank we have incorporated the slightly higher capex into our valuation for both phase i and the debottlenecking of phase i, but also the tax shield which anglo will enjoy for the first few years of the project. as a result our valuation increases from us$1.7bn to us$2.87bn.,page 4,deutsche bank ag/london,deutschebankag/london,page5,angloamerican,metals&mining,30january2013,3,minas rio history highlights a disappointing project/acquisition anglos us$5bn (us$4bn after tax) impairment announced for minas rio highlights a project which is materially late and over budget. though the revised bv of the project is in the region of us$5bn our valuation is more conservative at us$1.7bn. we are not positive on the project given us$10bn has been incurred to date but given the sunk cost and the potential optionality of higher iron ore prices we support the continued construction. we highlight, however, the project is far from de-risked and that any further delays or capex increases are a risk. figure 2: minas rio capex, production and key project characteristics over time,fy08,1h09,fy09,1h10,fy10,fy11,1h12 results,jan 13 minas,23-apr-07,17-jan-08,results,results,results,results,results,results,(dbe),rio review,acquisition price (us$m),1,150,5,500,interest in minas rio mine (%) interest in acu port (llx logistica) (%),49 49,100 49,100 49,100 49,100 49,100 49,100 49,100 49,100 49,100 49,interest in amapa (%) phase 1 capex (us$m),2,350,70,70 3,627,70 3,627,70 3,800,70 4,550,70 5,034,70 5,789,70 6,950,70 8,800,capex note,100% mine &,100% mine &,100% mine &,100% mine &,49% of port &,49% of port &,higher than capex increase,port,port,port,port,100% of mine,100% of mine 49% economic,of 15%,share of port & mine,assumed,phase 1 pellet feed production,26.5,26.5,26.5,26.5,26.5,26.5,26.5,26.5,26.5,26.5,capacity (mtpa wet) phase 1 lump production (mtpa),phase 1 start-up,4q09,1h10,2q12,2q12,2h12,mid 2013,2013,2h13,2q15,end 2014,phase 2 additional buy-in (us$m) phase 2 buy-in interest,600 50%,phase 2 (& 3) production capacity,26.50,26.50,26.50,53.50,53.50,53.50,53.50,53.50,53.50,53.50,(mtpa wet),phase 2 (& 3) capex est amapa production capacity (mtpa) cost / tonne including acquisition,2,000 175.47,2,000 6.5 276.59,6,000 6.5,6,000 6.5,6,000 5 348.33,6,000 5.1 372.46,6,000 5.1 388.56,8,000 5.1 413.67,8,000 5.1 452.28,8,000 513.80,price (us$/t) - phase 1,cost / tonne including acquisition,139.25,111.76,197.01,205.82,211.61,244.57,258.47,280.60,price (us$/t) - phase 1 & 2,reserves and resources - mr (mt) reserves and resources - amapa (mt),714,1200 178.1,4600 178.1,4153 146,4153 146,5300 146,5300 146,5300 146,5800,minas rio impairment amapa impairment source: deutsche bank,1,500,5,000,30 january 2013 metals & mining anglo american investment thesis outlook anglo is in a recovery phase post the operational challenges of 2012 and it is the timing of the recovery in demand for its products (diamonds and platinum), operational improvements (platinum, copper, nickel) and project delivery (met coal and minas rio) that will be the key differentiating performance drivers relative to peers, specifically: 1. we see the appointment of mark cutifani as positive, but only expect an update his plans for the group at the 2013 interim results, we expect a renewed focus on operational improvements (improving the link of operations to divisional and group head office), project delivery and capital allocation. 2. we see the platinum review announced as positive for longer-term fundamentals for pgms but anticipate that the implementation of the shaft closures and company restructuring to be disruptive and costly in 2013. 3. we see the improved certainty on minas rio (us$8.8bn capex and end 2014 first deliveries) as positive but not yet de-risked. 4. we expect news on the turnaround of the copper division, with early improvements signs in recent reports, to highlight deferred not lost copper production. given the upside potential based on our valuation we rate anglo as a buy. valuation our price target reflects a valuation taking into consideration both dcf over life-of-mine (9.5% wacc - beta 1.25, erp 4.5%, rf 5%, cod 6% on a through-the-cycle target gearing of 30%) for core asset valuations and market values or peer group multiples for non-core assets. we apply a 0.9x nav multiple to reflect managements performance relative to the broader metals and mining sector. risks risks include stronger-than-expected operating currencies (rand, a$) and lower commodity prices, in particular pgms, copper and iron ore. more specific risks include further cost increases or delays at minas rio, the implementation risks of the platinum operational review and delays to project approvals.,page 6,deutsche bank ag/london,6.,7.,6.,7.,30 january 2013 metals & mining anglo american appendix 1 important disclosures additional information available upon request disclosure checklist,company anglo american,ticker aal.l,recent price* 19.30 (gbp) 29 jan 13,disclosure 6,7,14,17,*prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is