As predicted in last year's Top Companies, 2004 was the year for diversified miners listed in London, but one group was the leader of the pack - BHP Billiton.
The four diversified groups are Billiton, Anglo American, Rio Tinto and Xstrata. Only the first two are listed on the JSE Securities Exchange.
Xstrata is SA's largest ferrochrome producer and third-largest coal exporter, while Rio Tinto controls copper producer Palabora Mining and owns 50% of titanium producer Richards Bay Minerals.
Billiton was the best performer, thanks largely to its portfolio of base metals, oil and gas operations, while Anglo was the laggard.
Of the four, Anglo is the most weighted towards precious metals because of its large investments in platinum and gold - and the most exposed to SA.
That exposure affected Anglo in two ways, with the detrimental effect of the strong rand on earnings and negative investor sentiment about Anglo's perceived problems with government about transformation and black economic empowerment (BEE).
The rand is the variable factor that has the largest impact on Anglo's earnings. A sensitivity analysis published by the group in its latest results shows that a 10% change in the rand/US dollar exchange rate, if maintained for a year, will have a US$465m effect on Anglo's headline earnings. That is equivalent to 17,3% of the $2,69bn that Anglo earned in the year to December 2004.
The ultimate defining mechanism to compare the two groups is the performance of their share prices. In March last year predictions from analysts in London and Johannesburg were that both groups were expected to "outperform", but only Billiton delivered.
By March this year, when both groups released financial results, the Anglo share price had dropped 15% from R173 to around R146, while Billiton had risen 32% to a record high of R89. Billiton then pulled back, while Anglo continued to meander at lower levels.
An obvious question is whether the good times can be expected to continue for Billiton. CEO Chip Goodyear has, however, answered this by increasing the group's interim dividend to US13,5c from the previous interim's 8c. He says BHP Billiton had "rebased" the level of its dividend payout and he is confident that the earnings and cash flow will be there in future years to support higher dividends.
The overall effect was that Billiton's 129% rise in interim earnings and 68,7% rise in interim dividend made Anglo's 59% rise in annual earnings and 70% increase in dividend look pedestrian by comparison.
The two main operating differences between the groups are cost control and Billiton's far greater exposure to the booming iron-ore business. Anglo has battled with cost control and with trying to expand its exposure to iron ore through its subsidiary Kumba.
The cost performance from Anglo's 75%-held subsidiary Anglo Platinum (AngloPlat) was particularly bad and some analysts are tracing the responsibility back to Anglo head office, because the problems at AngloPlat predate the appointment of new CEO Ralph Havenstein, who is now trying to sort them out.
With regards to iron-ore production, Anglo faces two problems - pushing up exports from Kumba's operations in the Northern Cape and the probable loss of the Hope Downs iron-ore project in Western Australia.
Kumba's iron-ore prospects are dependent on expansions of the rail and port infra-structure, but it seems there will be action soon, following management shake-ups at Transnet.
In March, Kumba and Transnet announced they had reached a definitive agreement on the timing of expansions at the Sishen mine and on the Sishen-Saldanha railway, through which Kumba will increase its iron-ore exports from 23,5 Mt/year to 35 Mt/year by 2009.
Kumba will spend R3bn on the expansion of Sishen and Transnet will invest R4,4bn on railways and ports. This has in turn focused attention on Kumba's smaller competitor Associated Manganese (Assmang), which also has substantial growth plans that did not seem to be catered for. Assmang exports about 6 Mt/year of iron ore and wants to increase this to 10 Mt/year by 2010.
Assmang subsequently announced it had concluded negotiations with Transnet that would push its exports up "substantially" by 2010 but - unlike Kumba - it did not provide specific export tonnages nor the specific investment to be made.
That is because the details have still to be ascertained. Kumba was quick to stress that its expansion was "locked in" and the agreed increase in rail capacity was all theirs.
Whatever Assmang may agree with Transnet will have to come over and above the levels Kumba now has in place.
In Australia, Anglo triggered the problem when it took over a major stake in Kumba, because this gave partner Hancock Prospecting the excuse to end the Hope Downs joint venture with Kumba on the grounds there had been a change of control.
That went to the courts, where Hancock won, and then to arbitration before Kumba and Hancock reached a buyout agreement. In April it was announced that Hancock had until the end of July to find A$231,4m to buy out Kumba. If Hancock cannot raise the funds, then Kumba stays in, which the group would prefer. Should Kumba be bought out, it could use the money to invest in other iron-ore projects - but the particular attraction of Hope Downs is that it can be developed immediately.
Anglo's relationship with the SA government was in the headlines, mainly due to President Thabo Mbeki's public attack on Anglo CEO Tony Trahar about comments on perceptions of investor risk in SA.
Then minerals & energy department director-general Sandile Nogxina publicly questioned the real corporate power of Lazarus Zim, who this year was appointed as CEO of Anglo American SA.
Zim's main responsibility is to continue with the transformation of Anglo American and the most obvious impact so far has been the appointment of a series of high-profile black executives, including Douglas Ramaphosa - brother of Cyril Ramaphosa - as executive head for corporate affairs.
It seems that much of Zim's time has been spent on the structure of the pending BEE deal at Kumba Resources. This is yet another controversial issue as speculation mounts about Anglo's plans. When it took over Kumba, acquiring 66%, Anglo agreed with government that it would subsequently drop its stake to 49%.
Market speculation in late April was that Anglo might seek to maximise its exposure to Kumba's iron-ore business by transforming this operation into a separate division that it would then control. In theory Anglo could own up to 74%, allowing for 26% that must be sold to a BEE partner.
To do this, Anglo would have to inject other assets into Kumba as compensation for the loss of the iron-ore business. The obvious candidates are coal and titanium assets because both Anglo and Kumba operate in these sectors.
Neither Trahar nor Zim would comment on the specifics of what is being planned for Kumba. Zim says: "We are well advanced in our efforts to bring about a comprehensive transaction that will fundamentally affect the BEE landscape in SA."
The good-news story for the sector at present has to be the extreme makeover under way at junior mining house Metorex.
Metorex has been aptly described as a serial underperformer because it has never delivered for shareholders, despite apparently doing all the right things. That situation is now changing as a result of the Ruashi-Etoile project in the Democratic Republic of Congo.
Ruashi-Etoile is what is known as a "company maker". If Metorex gets it right, then the group will be radically transformed, with one analyst estimating the share price could rise from the present R3,40 to around R12 over four years.
Ruashi Etoile is a huge copper and cobalt project that Metorex first became involved with early last year, in partnership with Tokyo Sexwale's Mvelaphanda Resources (Mvela). Sexwale subsequently dropped out and Metorex took up Mvela's stake.
