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Anglo American expect more challenges for iron ore and copper prices

Last updated: 07:08 14 Feb 2014 GMT, First published: 08:08 14 Feb 2014 GMT

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Anglo American (LON:AAL) says iron ore and copper prices will continue to be challenging because of growing supplies in the ‘near to medium’ term.

In the long term, however, the company believes that prices for its commodity products will be better supported, because of the current difficulties in building mines.

“Economic uncertainty, as we are seeing currently, tends to restrain new supply; in the longer term Anglo American therefore expects to see tightening market fundamentals and a recovery in price performance to support further margin improvement and returns,” it said in its financial results statement.

In the results themselves AAL says weaker metal prices were offset by better operational performance and currency gains (as currencies were weaker where it operates).

Chief executive Mark Cutifani said the effects of difficult macroeconomic conditions have been exacerbated by what he described as the “adversarial” labour relations in South Africa.

Underlying profit was up 6% at US$6.6bn and margins improved; however, at US$2.7bn the group’s earnings were 7% lighter than the previous year.

There were write-offs of around US$1.9bn, relating to the Barro Alto nickel mine, a review of the group’s platinum operations, as well as the Michiquillay and Foxleigh mines.

Losses attributable to shareholders totalled US$961mln, which is an improvement on 2012’s US$1.5bn loss. Net debt increased to US$10.7bn from US$8.5bn.

“While I expect headwinds to continue in 2014 as we reset the business, the benefits of much-improved operational processes and performance will flow through largely in 2015 and 2016,” Cutifani said.

“In the immediate-term, we have already delivered significant sustainable improvements, including early operational improvements, overhead reduction and reducing early-stage project expenditure.

“The world economy should also strengthen in 2014 and 2015 as we continue to emerge from the challenges of the global financial crisis. China should continue to grow by around 7% and the diminishing effects of fiscal tightening should support a firmer recovery in the US and beyond."

Shares were up 1.5% at  1556p in the first hour of trading.

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