Anglo cost cuts to reach £605 million

By Eric Onstad

LONDON (Reuters) - Miner Anglo American said its cost-cutting program, a key weapon in combating a merger approach, will reach half its eventual $2 billion (1.2 billion pounds) target this year as it posted sharply lower interim results.

Anglo, under pressure to show it does not need a tie-up with rival Xstrata and can create value alone, said it had achieved $450 million of the targeted savings due by 2011.

Analyst Nick Hatch at ING said some investors might be disappointed that Anglo had not increased its savings target, but it could be holding that in reserve in case Xstrata launched a formal bid.

"Until Xstrata crystallises its interest, there is little point in providing any enhanced targets or any detail. After all, that is all good defence material for use at a later stage," he said in a note.

Anglo rebuffed Xstrata's "merger of equals" approach on June 22, and Chief Executive Cynthia Carroll declined to discuss the issue at a presentation, only saying the two firms were still in contact about their joint ventures.

Anglo shares rose 0.5 percent to 1,915 pence by 2:57 p.m., in line with in the UK mining index, but lagging a 2.7 percent gain in Xstrata shares.

Anglo stock has underperformed Xstrata's by about 40 percent this year, though it has outperformed by 70 percent since the market hit a peak last year.

Anglo posted a 69 percent drop in underlying earnings per share to 91 cents for the six months to the end of June, higher than a consensus forecast of 81 cents compiled by the company from 11 analysts.