* H1 underlying operating profit $3.3 billion vs $3.1 billion estimate
* Cuts 2013 spending by $1 billion
* Targets cash flow uplift by 2016 of $1.3 billion, ROCE of over 15 percent
* Shares up 1 percent (Writes through after analyst call, adds Minas Rio detail, quotes)
LONDON, July 26 (Reuters) - Anglo American's new boss laid out his blueprint for a turnaround of the underperforming miner on Friday, vowing to cut costs, halve a $17 billion project pipeline and revive lagging mines to boost cash and returns by 2016.
A straight-talking Australian engineer who joined Anglo from South African gold producer AngloGold in April, Mark Cutifani outlined his first plans alongside better-than-expected half-year results that still showed a 15 percent drop in profit.
Anglo, the smallest of the major diversified miners, has trailed behind its peers for much of the past decade, most recently battling labour unrest in South Africa, where it still generates half its earnings, and multi-billion dollar cost overruns in Brazil.
"Are we tapping the potential we have as a group? The answer is no," Cutifani told investors and analysts, branding Anglo's performance as "unacceptably poor".
"Over the last eight (quarters) only 11 percent of operations are delivering consistently against their targets - we have to up that."
The shake-up offered no quick fix for woes that have accumulated over decades at Anglo, or specific solutions for either of its two worst headaches - South African platinum and the much-delayed Minas Rio Brazilian iron ore project.
But analysts welcomed plans to streamline a cumbersome corporate structure, cut 2013 capital spending by $1 billion - largely from Minas Rio - and do more to get better prices for its commodities by boosting marketing. That last element alone should provide an annual $500 million boost.
"It is not about wholesale or radical changes at the operating level, but it is about introducing a much more disciplined approach to planning, to execution and delivery on the objectives we have," Cutifani said.
Anglo has seen total capital employed more than double since 2007, but the rate of return on that capital has more than halved. It will now target a return on capital employed (ROCE) - a measure of the value a company gets from its assets - of 15 percent by 2016 - compared to 11 percent in the first half and 8 percent for the year to date on spot prices.
To get there, it will need to boost its cash flow by an annual $3.5 billion - $1.3 billion of that was detailed on Friday to include cutting overhead costs and slashing by a third the amount spent on projects not yet approved by the board.
Cutifani did not detail the remaining $2.2 billion, though much will come from improving performance at its mines, and even asset sales. Businesses, he said, would have to "pay their way".
Analysts said there remained questions around divestments, execution and Anglo's balance sheet as debts rise. Anglo shares climbed by as much as 2 percent against a flat FTSE 100 index in London before settling 0.9 percent up at 1210 GMT.
"There has been good progress on the cost cutting. The key issue going forward will be to see that is realised," analyst Paul Gait at Sanford Bernstein said.
Anglo, like many of its peers, said it would also consider opportunistic asset sales, though Cutifani said there would be no "bazaar sale". He confirmed the group was searching for a partner at $8.8 billion Minas Rio, adding there had been a lot of inquiries, though having "stubbed its toe" on the project Anglo was now not under pressure to sell. The financial woes of existing partner Eike Batista, should he fail to pay his share, would cost Anglo a maximum of $300 million, he said.
Cutifani will also seek to simplify the group by cutting its 10 business units to 6 - undoing changes brought in by previous chief executive Cynthia Carroll. That will involve merging thermal and metallurgical coal together, and base metals.
Cutifani's former right-hand man at AngloGold, Tony O'Neill, also joins Anglo as group director for - among other things - mining technology, business performance, asset optimisation and projects.
Anglo, the first of the diversified majors to publish results, said underlying operating profit fell in the six months to $3.3 billion, ahead of a consensus estimate of $3.12 billion. Underlying earnings per share (EPS) came to $0.98.
Anglo held its interim dividend at 32 cents per share. (Reporting by Clara Ferreira-Marques; Editing by Patrick Graham)