Anglo American

Recent interim results from mining giant Anglo American (AAL) made encouraging reading. Record earnings augmented substantial progress on multiple strategic objectives, which we believe will lead to further profitable growth in time. In addition, a robust organic portfolio of projects will underpin longer-term production gains.

Anglo American offers diversified exposure to a range of commodities from operations around the world. In all the company operates eight product based businesses in over 60 countries. As such the company serves as an ideal vehicle to gain exposure to an ongoing commodities bull market.

In the first six months of this year, robust natural resource prices and solid operational performances led to record underlying earnings of US$2.5 billion, a 47 percent increase. Of the eight different divisions Anglo operates, the Base Metals group made the largest contribution. Robust nickel and zinc production along with a surge in prices propelled earnings to a record US$1.8 billion, well ahead of US$721 million last year.

Also riding the wave of higher prices and rising production was Anglo Platinum. The result was a record earnings performance, up 128 percent over 2005 to US$934 million.

Anglo's investment in AngloGold Ashanti paid rich rewards during the period with operating profit increasing 76 percent to US$303 million. Encouragingly, prices of gold have rebounded well from the correction earlier this year and we anticipate further rises as the year progresses.

Anglo's strategic corporate re-structuring continued with the sale of a 9.1 percent stake in AngloGold and the group's 79 percent stake in Highveld Steel for US$678 million. Further moves will involve the de-merging of the group's Paper and Packaging group, Mondi as well as the unbundling and separate listing of iron ore and aluminium assets. The aim of all these activities is to hone Anglo's core mining operations while also unlocking value for shareholders.

Longer-term, we are upbeat about the world class pipeline of projects Anglo has in its portfolio. These include coal projects Dawson and Lake Lindsay in Australia, the PPRust platinum prospect, iron ore expansion in South Africa and diamond developments Snap Lake and Victor in Canada.

Given our bullish long-term view on commodity prices, the global heavyweight miner remains one of our favourite exposures to the sector. We believe that Anglo's strategic re-structuring and pipeline of projects will provide longer-term support. With this in mind, we regard Anglo's valuation as undemanding. The shares trade on a prospective price earnings ratio of just 11 times and a dividend yield of nearly 3.5 percent.