Amec plc Is A Solid Company Built On Growth (LON:AMEC, Mactec, Urenco, BP, Clean Energy, Energy Investments, Earth & Environmental)

Here's a stock that should appeal to the pernickety investor, London-based engineering group Amec (LON:AMEC). The company is an important player in both the nonrenewable (oil & gas) and renewable (nuclear & other clean energies) sectors; It provides services ranging from oil rig maintenance to water supply management of municipal acquifers and conservation strategies to nuclear power plant decommissioning and other safety services.

What makes the company solid is the fact that the services it provides are so diverse. It operates in oil and gas but also the booming clean energy industry. There's also the minerals & metals and environment & infrastructure divisions. The group provides consulting, engineering and construction/project management primarily as designer-developer of strategic assets (also maintenance and decomissioning, in 2010 $2.45b of its $5.0b sales originated from the engineering design process). In the North Sea, it fabricates and designs oil rig platforms. It also services oil wells in Kuwait and aids oil safety efforts in the Gulf of Mexico where it designs and delivers components for the Marine Well Containment Company (MWCC). In Chile AMEC has a contract with Compañía Minera del Pacífico (EPCM) for work at the Cerro Negro Norte iron ore project.
After the nuclear meltdown in Japan, nuclear safety is also becoming a major issue. That's good for Amec because the company is experienced at nuclear cleanup and decommissioning problematic reactors. Amec's customers are diverse meaning the company appeals to a broad group of clients. Key clients include the US Navy, nuclear company URENCO, and oil and gas companies British Petroleum and ConocoPhillips.

Important points to consider
- Amec added 3500 new employees in 2011 bringing the total to just over 27,000.
- Amec runs AMEC academy which helps new employees develop skills.
- Amec added a number of new customers in 2011 among them GDF Suez (Cygnus gas field) and nuclear power company Urenco.
- World primary energy demand is forecast to increase by 40% between 2009 and 2035 (12.15M tones of oil equivalent --> 16.950Mtoe).
- According to the world's biggest company ExxonMobil (2012 Global 2000 list released in April) global population will increase by 25% between 2010 and 2040 with non-OECD nations contributing 90% of energy demand growth.
- The Clean Energy market which is integral to Amec's business mix, was the recipient of $260 billion in global investment in 2011 which is a record high for that market.

Key Financial Metrics to consider

In 2011 earnings per share (EPS) up +13% to 70.5 pence, grew faster than revenue/turnover (+11%). Amec also pays dividends ! 30.5 pence/share in 2011 which is +15% vs 2010 (26.5 pence). While we're talking about dividends keep this in mind, AMEC's dividends have gone up for four consecutive years. Dividends were 13.4p in 2007, 15.4p in 2008, 17.7p in 2009 and 26.5p in 2010. The company's operating cash flow was up +22% in 2011 to £267 million. Total pretax profit is up nearly 50% in just two years even though during that time revenue increased by only 28.4%.

In my opinion AMEC's products and services are invaluable to the energy industry. Though about 80% of revenue comes from Europe and North America, AMEC has offices in 40 countries worldwide. The company is also not afraid of making big acquisitions; Amec has a major growth strategy which is refers to as Vision 2015. It aims to make the company more multinational through acquisitions while also enhancing its capabilities in key sectors. Consistent with that goal, in 2011 Amec acquired Australian oil and gas consultancy group Zektingroup for AUS$48 million (gives it a presence on the East Coast of Australia, Zekting's workforce = 200) followed by Georgia-based Mactec on May 17, 2011 for US$280 million all in cash. The deal for Mactec was ingenious, although Mactec is already involved in the same kind of business its client base was a lot different (was more commercial and industrial). In its last year of being independent Mactec made $411M in revenue (compared to $5.0B for Amec in 2010).

Mactec
The Mactec deal added 2,600 employees to Amec and boosted its North American workforce up to about 14,000 (half of company total, NA operations account for roughly half of Amec's revenue). Mactec then became part of AMEC's Earth & Environmental division (environmental, water resources, infrastructure unit). Mactec gives Amec more business in the Western USA and Canada.

Other Strong Investments in the engineering industry (nyse: MTZ)
MasTec, Inc ! If you live in North America you probably make use MasTec built infrastructure on a regular basis. The company installs and maintains energy infrastructure most notaby that which is used in electrical utility transmission. For the first three months of 2012 calendar year MacTec revenue is up +25.87% quarter on quarter to $778.48 million. However, the bottom line didn't improve (in the quarter net income down -33% to $14M) because the cost of revenue was up +29.5% ($583.91m --> $684.66m). That may be an aberration owing to wildly fluctuating metal prices and other imput costs; The cost of revenue in the March 2012 quarter was at its lowest level in three quarters.

Rio Tinto (RIO) Production up only for Aluminum, Bauxite, Iron, Salt, Borate & Titanium; Copper Will get a boost from Ivanhoe Mines (IVN), Pilbara, Escondida

Rio Tinto's largest projects as of January 2012 (indepth look here)

Project												New Annual Output												Metals												Year												Total cost
Pilbara 283												53 Mt												iron ore												2014												$9.7 bil
Oyu Tolgoi												1.2b lb 650th oz 3m oz												copper gold silver												mid 2013												$6.0 bil
Kitimat												400th tonnes												aluminum												3Q 2014												$3.3 bil
Yurwun 2												2 Mt												alumina												3Q 2012												$2.3 bil
Argyle												20 mil carats capacity												diamonds												2Q 2013												$2.1 bil
Hope Downs 4												15 Mt (30 yr life)												iron ore												mid 2013												$2.1 bil
Kestrel												1.3 Mt												coal												mid 2013												$2.0 bil
AP 60 Quebec												60 kt												aluminum												2Q 2013												$1.1 bil
Marandoo Aus												15 Mt												iron ore												early 2015												$1.1 bil
Iron Ore Company Canada 1 2												5.3 Mt (Rio owns 59%)												iron ore												early 2013												$763 mil
ISAL Iceland												40th tonnes												aluminum												mid 2012												$487 mil

      Rio Tinto (RIO) had a lot going for it and against it in 2011. Copper grades and low exit-year prices affected earnings in the second half. Fiscal year results were buoyed by iron ore which saw prices peak mid year and output grow to record levels (ended the year at $140/tonne vs high of $180/tonne mid year). Rio Tinto is Australia's biggest iron ore exporter and also a major producer of its coal (coal is Australia's single largest export earner). A $7 billion share buy back plan is nearing completion.

Of the $33 billion capital projects underway the largest one, Pilbara 283 ($9.7B) won't be ready until the end of 2013. The second largest, Oyu Tolgoi phase 1 ($6B) will be ready midyear 2013. Nine of the eighteen projects will be completed in 2012. 2015 is on track to be a big year for Rio with 167.7 million tonnes/yr of new iron-ore production coming online.

Notes:
-Grasberg, Indonesia has been a joint venture with Freeport-McMoran since 1998.
-Sold 100% interest in Colowyo on Dec 1, 2011
-Rio is no longer in the business of talc as of August 1, 2011. That's why talc output is down; No attributable production from there since the 3Q 2011 when output fell to below 100 mil tonnes for the first time ever.  The talc unit, Luzenac which is the world's leader in talc production, was sold to a French company for $340 million.
-2012 will see new copper production from Coal & Allied in which Rio Tinto now has an 80.0% interest up from 75.7% (effective December 16, 2011).
-Spun off US coal operations in Dec 2010. That transaction netted the company $2 billion however it cut off nearly three quarters of Rio Tinto's coal production going back to 2009. The new company formed in the spinoff is Cloud Peak Energy which trades on the New York Stock Exchange as CLD.
-On Feb 20, 2012 announced a $518M investment in autonomous Iron Ore rail cars that will operate in Pilbara, Australia beginning in 2014 (at present Pilbara is the site of a major expansion project underway that will boost copper output significantly over the coming years beginning in 2013).
-all of the company's molybdenum comes from Kennecott Utah
-February 3, 2012: Rio Tinto Alcan begins restarting aluminum smelters in Shawinigan, Quebec
-Doubled interest in Richards Bay Minerals to 74% from 37%. RBM is a South African titanium dioxide company. That will lead to an inevitable increase in titanium production.
-Hecla Mining, the US's largest primary producer of silver gets 68% of its silver from a mine that Rio Tinto owned up until April 2008 (Green's Creek).

Financial Highlights quoted in US Dollars
Higher commodity prices led to a record in underlying earnings (+11% to $15.5 billion), record in ebitda (+10% to $28.5 billion) and record in cash flow from operations (+16% to $27.4 billion). Capex was 2.67X higher at $12.3 billion. Surprisingly all of this didn't translate into higher net earnings which were down 59% to $5.8 billion on account of impairment costs amounting to $8.9 billion, associated with the aluminum business. Don't be too concerned about the fall in EPS to $3.035 from $7.31 in 2010; dividend per share was $1.45 +34% vs 2010. Here's some background on what Rio Tinto excludes when determining underlying earnings.

In 2011 Rio Tinto spent $6.1 billion on acquisitions, $2.2 billion on dividend payouts and $6.2 billion on taxes. Cash flows from operations have nearly doubled since 2009. Targeted 2012 capex is $16 billion or over 30% higher than 2011 with about 3/4 of it going to Australia (over half) and Canada (less than a quarter).

Iron Ore
This continues to be Rio Tinto's backbone. It is the largest source of EBITDA contributing 73.4% of the group's product total of earnings before taxes ($20.93b/$29.491b) which is up from 62.4% in 2010 (was as low as 43% in 2008). Iron ore contributed 78.0% of group earnings in 2011 up from 67.6%.

Iron ore output from the 6 of 8 Hamersley iron ore mines that Rio owns outright, was 7.8% higher on the year (121.525M tonnes). The other two Hamersley mines are 60% owned and produced 15.994M tonnes (up 1.13% from 15,816 in 2010).

As of 2011 global iron ore production capacity was announced for 800 Mt annually but by 2011 4Q only 200 Mt was achieved.

Copper
Contributed 6.9% of ebitda down from 16.9% in 2010. Copper earnings were down 23.6% and the reason for that is two-fold: total mined copper down 23% stemming from lower grade ore at Escondida and Kennecott Utah, the same thing that negatively affected results at the end of last year and also the price of copper, down to $3.44/lb in December from $4.24/lb mid year. The lower grades are only temporary given that grades will come in higher in the coming years due to the commencement of operations at new projects/expansion projects

Oyu Tolgoi - Construction is currently 70% complete, by 2013 it should be producing 1.2 billion pounds of copper per year then working its way up to 1.7 billion pounds by year seven in 2019-2020. Ivanhoe Mines has a direct, controlling stake in the project (66%, ownership is not through South Gobi) and Rio Tinto has a 49% interest in Ivanhoe Mines and strong board representation (7/13 Ivanhoe board members represent the interests of Rio Tinto). Just recently Bank of America said that Ivanhoe Mines will be a leading position for copper in 2018 when it will be "one of the world's 10 leading copper producers".
Escondida - the site of major project expansions underway in Chile where just last week Rio Tinto and its partners (30/70 interest) approved a $1.4B expansion.
Pilbara - Output expands to 283M tonnes/yr by 2013, 353Mt by 1H2015. The company just announced yesterday its US$518 million autonomous rail network which will the first of its kind. Rio Tinto's rail network is currently 1,500 km long and has 148 trains. Copper production from Pilbara was down 7% in 2011 due to lower recoveries key equipment being unavailable.

Rio Tinto is probably not complaining about the temporary decline in copper production considering that copper prices ended the year at a low point (3.44/lb Dec 31 vs $4.24/lb June 30).

Northparkes was only one of five major copper operations that recorded a year on year increase in output. Mined copper was +29% on the year, +34% in the 4Q as a result of optimization projects being implemented & higher grades from section E48.

Gold and Silver
Lower grades caused gold (-12.3%) and silver (-27.0%) output to decline from 2010 levels however that is expected to change in 2hlf 2012 and 2013 when grades will get a boost from new mining activity in Mongolia and elsewhere. Oyu Tolgoi possibly beginning in 2013, will produce silver at a rate of 3 million ounces a year (59 year mine life) and 650,000 ounces of gold.

33.2% of the decline in silver output (605/1823) was due lower production from Grasberg, the smallest of Rio's four silver mines; Grasberg is a joint venture. Silver production from the largest of its operating mines, the 100% owned Bingham Canyon mine was 20% lower to 2.976 mil ounces. The second largest source of silver, Escondida is only 30% owned (prod there down 29.5%).

Though mined silver production fell on the year, refined silver output (all of it occurring at Kennecott Utah) was +32.61% to 4.732 million ounces.

Primary Aluminum
13 of the 21 mines are 100% owned. Those 13 produced 2442 thousand tonnes of aluminum in 2011 up 30.73% from 2010 when output was 1868.

Diamonds
The largest of Rio's three diamond mines is Argyle in Western Australia. Argyle produced 7.441m carats in 2011 which is down 24.1% from 2010. In contrast, the 60% owned Diavik mine in NWT increased its output by 2.72% to 6.677m carats while 77.8% owned Murrowam Zimbabwe produced 2.06X more at 367,000 carats.