Anglo American continued to ride the wave of high demand and increasing commodity prices on its custom-made board of low costs and higher value products in the six months to June. While mining and sales volumes decreased in just about all of its divisions and revenue increased by only 8%, profit attributable to shareholders increased by a huge 46% in dollar terms.
The mining giant reported that attributable profit increased to $1.88 billion in the first half of its current financial year compared to $1.29 billion in the first half of last year. Earnings per share increased from $1.02 to $1.48, which paved the way for an increase in the interim dividend of 27% to $0.62 per share.
Anglo American CFO Stephen Pearce mentioned at the announcement of the results that Anglo has returned $4.4 billion to shareholders since the beginning of 2017. Some 80% of this was in the form of dividends and the other 20% by way of share repurchases.
Anglo will buy back an additional $1 billion worth of shares this year.
Nobody can deny the hard work that went into fixing Anglo American over the past five years. People just need to look back to 2014 and 2015 when a lot of investors and analysts thought it best that Anglo merge with one of the other big mining groups or face a certain demise.
Anglo’s high debt was the subject of many discussions, and jokes. It got even worse when Mark Cutifani took the reins as CEO and announced a big sale of a lot of the assets.
But within a few years the leaner Anglo had made a comeback. At a presentation of the interim results yesterday, Cutifani said the Anglo American of today is a different business.
“Our productivity per employee [has] more than doubled since 2012, driving the profit margin in the mining operations to 46%. This places Anglo among the very best in the industry.”
He says Anglo has improved its earnings before interest, taxes, depreciation, and amortisation (Ebitda) by $4.6 billion annually since 2012.
“Looking ahead, we are committed to delivering our goal of an additional $3-4 billion annual underlying Ebitda improvement to 2022 relative to 2017.”
Anglo is well on its way to achieving that goal this year. Ebitda increased to just less than $5.5 billion in the first six months compared to $4.6 billion in the first half last year.
But it won’t be easy. A closer look at the results shows that the big increase in profits is due to only two business units – iron ore and platinum – while the rest of the commodities all performed worse than during the sale period last year.
A sharp increase in iron ore prices and Kumba’s strategy of focusing on higher-value ore has seen profit from the iron ore division increase by nearly 350% (even in dollar terms) from $454 million to more than $2 billion.
The increase in AngloPlat’s fortunes resulted in its contribution to Anglo American increasing by 61% to $824 million.
Contribution to Ebitda
|$ million||6m June 2019||6m June 2018||Change|
|Iron ore||2 036||454||348%|
|Nickel and manganese||326||420||-22%|
|Corporate and other||-38||-126||70%|
Source: Anglo American interim results, June 2019
The better results from platinum are mostly due to a strong increase in commodity prices. The same goes for the iron ore division, but higher production at Anglo’s Minas-Rio mine also contributed as production returned to normal after maintenance work in the first half of last year.
The production volumes of all commodities were lower, with De Beers leading the decline. The large Venetia diamond mine in SA produced much less due to the start of work on its transformation from an open pit to an underground mine.
Diamond production was also curtailed due to weaker demand, with Anglo continuing to play the role of equaliser in the market as it tries to balance supply and demand.
Coal suffered on both the fronts of low volumes and very low prices.
Cutifani remains optimistic about the next year or two, despite Anglo’s modest outlook with regards to production levels as evident from its guidance to investors going forward to 2022. Most of its new projects and capital expenditure at existing operations seem to be aimed at maintaining, rather than increasing, production.
Anglo aims to chase profits by working even more smartly and more effectively in future, and hopes that markets remain robust. While demand for copper, coal and iron ore are slowing in China, management sees higher demand from the rest of Asia and India.
New technologies in the transport and energy sectors might help demand for platinum group metals and nickel, while manganese seems to be getting more popular for use in alloys.
Investors welcomed the interim results with a rise of nearly R10 in Anglo’s share price to more than R387 on the JSE, a far cry from the low of just above R50 in the dark days of 2015 when Anglo seemed to be on the ropes.