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UPDATE 3-Leaner Anglo boosts earnings, but miner's share rally stalls

* CEO says focus is on productivity

* Major miners have reported increased cash, reduced debt

* Stronger South African rand creates headwind (Adds detail on Quellaveco, diamonds, update share price)

LONDON, Feb 22 (Reuters) - Anglo American said on Thursday annual earnings rose 45 percent and net debt halved as the miner recovered from a commodities slump, but its share rally stalled as some of the figures failed to meet analysts' expectations.

All the major miners have reported a recovery from the 2015-16 crash in commodities prices, announcing increased returns for shareholders and lower debt, while promising to avoid the spending sprees that piled on new supplies and helped to end the last boom.

Anglo American and Glencore, which on Wednesday said its results were the strongest yet, saw their shares fall the furthest in the downturn and have rallied the most as commodity markets have recovered.

South African-focused Anglo received a further spur this year from expectations the country's new President Cyril Ramaphosa, who replaced Jacob Zuma, will support the industry.

But Anglo shares, which had outperformed rivals by rising more than 15 percent this year, slipped as must as 4 percent as analysts said Thursday's results missed some forecasts despite improving vastly since the commodities downturn.

By 1411 GMT, the shares had recovered some ground to trade around 1 percent lower.

The company reported underlying earnings before interest, tax, depreciation and amortization (EBITDA) of $8.8 billion, a 45 percent increase year-on-year.

It delivered free cash flow of $4.9 billion, a 93 percent increase that helped to roughly halve its net debt and it restored dividends that were scrapped during the downturn.

When the commodity crash was at its most severe, Anglo said it would narrow its focus to diamonds, platinum group metals and copper. As the market recovered, it ceased to be a forced seller, retaining coal operations that have driven profits higher.

Still it has reduced its assets by 47 percent since 2012 and boosted productivity.

"We have done what we said we would do," Chief Executive Officer Mark Cutifani told reporters on a conference call, highlighting in particular the improvement in productivity by 28 percent per person last year alone.

"Anglo American is a fundamentally different business. We are more resilient. We are more competitive. We are delivering solid returns," he said. "Our intention is to keep improving the business from the base we have established today."

Edward Sterck, analyst at BMO Capital Markets, which rates Anglo outperform, said the full-year profit was slightly light.

"The results are a little disappointing, but the company has demonstrated a significant year-on-year improvement and is clearly still walking down the path to redemption," he wrote.

A stronger South African rand, which reached three-year highs as the president was replaced, has created a headwind by eroding the impact of commodity price gains as the rand-based costs of Anglo's South African operations are effectively higher.

Anglo said it did not hedge the currency, but protected itself through a diverse portfolio and cost cutting.

As miners focus on an expected rise in demand for copper from the renewable energy industry and electric vehicles, Anglo must decide whether to develop the Quellaveco copper project in Peru in which it has an 81.9 percent stake.

Cutifani said the company was finalizing feasibility work and the board would be asked to decide around the middle of the year. Anglo was weighing whether its Japanese partner Mitsubishi should have a bigger share to curb costs, he said.

Cutifani said production of diamonds, which provided about a fifth of the firm's revenue, remained central to diversifying the portfolio. The gemstone prices tend to run counter to the overall commodities cycle and are generally less volatile.

The chief executive of Anglo's De Beers diamond unit, Bruce Cleaver, said in an interview De Beers' supply would shrink slightly over the coming years, potentially boosting prices.

A new mine at Gahcho Kue in Canada helped lift De Beers' 2017 output to 33.5 million carats, up a fifth from the previous year. It is forecast to rise to 34 million-36 million carats in 2018 before shrinking to 32 million carats in 2019-2020, as old mines in Canada and South Africa become less productive.

(Additional reporting by Arathy S Nair and Noor Zainab Hussain in Bengaluru; Editing by Adrian Croft and Edmund Blair)