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Anglo American PLC   -  AAL   

Anglo American Interim Results 2019

Released 07:00 25-Jul-2019

RNS Number : 6394G
Anglo American PLC
25 July 2019
 

 http://www.rns-pdf.londonstockexchange.com/rns/6394G_1-2019-7-24.pdf

 

  

HALF YEAR FINANCIAL REPORT

 

for the six months ended 30 June 2019

 

25 July 2019

Anglo American Interim Results 2019

Sustained business performance delivers 19% increase in underlying EBITDA to $5.5 billion

Mark Cutifani, Chief Executive of Anglo American, said: "We are building on the improvements we have embedded across our business and benefiting from our diversification as stronger prices for certain products more than offset price weaknesses elsewhere, generating a 19% increase in underlying EBITDA to $5.5 billion and a 22% ROCE. The strength of our balance sheet and disciplined capital allocation support our investment in highly attractive organic growth while delivering a 27% dividend increase, in line with our 40% payout ratio, and our intention to return up to $1 billion through a share buyback.

"Our determination to reach and sustain zero harm is our most pressing challenge. No degree of financial performance is worth a life, however, and in the first six months of 2019, regrettably three of our colleagues died in workplace safety incidents, two of which were vehicle related. Two additional fatal transport incidents in Chile in late June and early July caused the loss of ten of our colleagues and are being urgently investigated. The safety of our people at work or travelling to and from home is paramount and we have instructed additional wideranging measures, including with all those who provide transport services to us.

"Our focus on efficiency and productivity, driven by our Operating Model implementation, is continuing to deliver improvements. Compared to 2012, our productivity(1) per employee more than doubled, driving a 16 point increase in Mining EBITDA margin(2) to 46% and placing us amongst the very best in the industry. We expect our targeted cost and volume benefit for 2019 ‒ adjusted to $0.4 billion to reflect our decision to pull back production at De Beers ‒ to come through in the second half of the year, building upon the $4.6 billion of annual underlying EBITDA improvement delivered since 2012. And looking ahead, we are committed to delivering the additional $3-4 billion annual underlying EBITDA run-rate improvement by 2022, relative to 2017.

"Anglo American is a resilient and highly competitive business with a clear asset-led strategy. Our focus is on unlocking the very significant additional potential that we see within the business ‒ and to do it safely and responsibly. Our worldclass portfolio benefits from a range of high margin, high return, fast payback organic growth options, sequenced over time, particularly in those products that will supply a cleaner, more electrified world and that satisfy the consumerled demands of a fast-growing global middle class."

Financial highlights - six months ended 30 June 2019

•    Generated underlying EBITDA* of $5.5 billion, a 19% increase, and $1.3 billion of attributable free cash flow*

•    Delivered profit attributable to equity shareholders of $1.9 billion, a 46% increase

•    Net debt* increased to $3.4 billion following adoption of IFRS 16. Net debt of 0.3x underlying EBITDA

•    Targeting full year 2019 cost and volume improvements of $0.4 billion ‒ adjusted for De Beers production

•    Increased interim dividend of $0.62 per share, equal to 40% of first half underlying earnings*

•    Share buyback ‒ intention to return up to $1 billion

 

Six months ended

30 June 2019

30 June 2018

Change

US$ million, unless otherwise stated

 

 

 

Revenue

14,772

 

13,698

 

8

%

Underlying EBITDA*

5,451

4,577

19

%

Mining EBITDA margin*

46

%

41

%

 

Attributable free cash flow*

1,325

 

1,606

 

(17

)%

Profit attributable to equity shareholders of the Company

1,883

 

1,290

 

46

%

Underlying earnings per share* ($)

1.58

1.23

28

%

Earnings per share ($)

1.48

1.02

45

%

Dividend per share ($)

0.62

0.49

27

%

Group attributable ROCE*

22

%

19

%

 

Terms with this symbol * are defined as Alternative Performance Measures (APMs). For more information on the APMs used by the Group, including definitions, please refer to page 61.

 

 

 

SUSTAINABILITY PERFORMANCE

Safety

Anglo American's safety performance is the subject of very significant management attention in order to eliminate the causes of harm in the workplace. Three of our people lost their lives in the first six months of 2019 - one in each of Australia, Chile and Peru, two of which were vehicle related incidents. In addition, in late June, six colleagues from the Collahuasi joint operation in Chile lost their lives in a transport incident and, in early July, a further transport incident near Los Bronces mine caused the loss of four of our colleagues. Building upon our Elimination of Fatalities Taskforce to better manage fatal and catastrophic risks, we have instructed wide-ranging measures in relation to drivers, passengers, vehicles and roads across our operations, including with all those who provide transport services to us. The safety of our people is paramount and our determination to reach and sustain zero harm is our most pressing challenge.

The Group's total recordable case frequency rate provides a broader picture of significant progress, with 2.20 injuries per million hours worked, a 17% improvement over the record performance rate achieved in 2018. However, we should not be experiencing major safety incidents and we have demonstrated time and again that even our most potentially hazardous businesses can be incident-free for long periods.

Environment

We recorded one Level 3 environmental incident in the first half of 2019 (30 June 2018: one Level 4 and three Level 3), at the Unki PGMs mine in Zimbabwe relating to discharge into a river. Appropriate and timely containment and remedial actions were taken.

Our sustainability goals include our commitment to be a leader in environmental stewardship. By 2030, we aim to: reduce GHG emissions by 30% against a 2016 baseline and improve energy efficiency by 30%; achieve a 50% net reduction in freshwater abstraction; and deliver net-positive impacts in biodiversity wherever we operate.

Tailings storage facilities

We have confidence in the integrity of our 91 managed tailings storage facilities (TSFs) around the world. These facilities are subject to the highest global safety and stewardship standards, using appropriate advanced technologies such as satellite monitoring, fibre optics and micro-seismic sensors. Anglo American has also received assurances from the operators of non-managed joint arrangements in which Anglo American has an interest relating to the safety of TSFs at those operations. As an industry, we have a clear ethical and moral imperative to do everything possible to ensure that TSFs are managed to the highest standards of safety as we work together, as an industry, to build greater levels of trust with all our stakeholders.

 

Anglo American completely revised and updated its technical standard for TSF safety management at its managed operations in early 2014. The standard is updated as appropriate and goes beyond regulatory and other industry requirements in all host jurisdictions. This mandatory global standard mitigates the long-recognised principal risk that TSFs pose, sets minimum requirements for design criteria, monitoring, inspection and surveillance, and was peerreviewed by international specialists.

Sustainable mining

Anglo American has a long track record as a leader in sustainable, responsible mining. Our far-reaching Sustainable Mining Plan, launched in 2018 as part of the FutureSmart Mining™ programme, commits us to a series of ambitious medium and longer term goals. These relate to three major areas of sustainability aligned to the UN's 2030 Sustainable Development Goals: trusted corporate leader (i.e. advocating for the highest standards of governance to drive transparency and trust in mining and mined products); healthy environment; and thriving communities. While our environmental goals will rely on many of the technologies we are beginning to deploy, we are also thinking innovatively to create regional ecosystems of sustainable economic activity, in partnership with appropriate development experts.

(1)     Productivity indexed to 2012 benchmark.

(2)     The Mining EBITDA margin is derived from the Group's Underlying EBITDA as a percentage of Group Revenue, adjusted to exclude certain items to better reflect the performance of the Group's mining business. The Mining EBITDA margin reflects Debswana accounting treatment as a 50/50 joint operation, excludes third-party sales, purchases and trading and excludes Platinum Group Metals' purchase of concentrate.

 

 

 

Operational and financial review of Group results for the six months ended 30 June 2019

 

OPERATIONAL PERFORMANCE

Production decreased by 2% on a copper equivalent basis, as increases at Copper and at Minas-Rio (Iron Ore), which restarted operations in December 2018, were offset by a combination of the timing of a longwall move at Moranbah and a preliminary upgrade of the wash plant at Moranbah/Grosvenor (Metallurgical Coal); lower production at Venetia (De Beers) as it transitions from open pit to underground; and unscheduled plant maintenance at Kumba (Iron Ore).

De Beers' rough diamond production decreased by 11% to 15.6 million carats (30 June 2018: 17.5 million carats), primarily as additional production was not ramped up to compensate for Venetia's transition from open pit to underground, as a result of weaker demand experienced in the period.

Copper production increased by 2% to 320,200 tonnes (30 June 2018: 312,900 tonnes), largely due to strong mine and plant performance. Production at Collahuasi decreased by 3% owing to planned lower grades.

At our PGMs business, total platinum production (metal in concentrate) decreased by 1% to 992,200 ounces (30 June 2018: 1,005,600 ounces), while total palladium output decreased by 4% to 673,800 ounces (30 June 2018: 698,900 ounces), excluding the impact of the transition of Sibanye-Stillwater Rustenburg material to a tolling arrangement in 2019. The decline in production was primarily due to power disruptions in the first quarter of 2019 and planned mining through a higher waste area at Mogalakwena.

At Kumba, iron ore production decreased by 11% to 20.1 Mt (30 June 2018: 22.4 Mt), mainly due to unscheduled plant maintenance at Sishen in the first quarter and the infrastructure upgrade of Kolomela's DMS plant. The plant at Sishen is returning to normal operational levels, while the upgrade at Kolomela will continue into the second half of the year.

Following the restart of operations at Minas-Rio in December 2018, iron ore production for the first half of 2019 was 10.8 Mt, reflecting the optimisation work undertaken during 2018 while operations were suspended, and access to the Step 3 mining area higher grade ore.

Metallurgical coal production decreased by 7% to 10.0 Mt (30 June 2018: 10.8 Mt), driven by the timing of a longwall move and the preliminary upgrade of the wash plant at Moranbah/Grosvenor.

At Thermal Coal - South Africa, total export production increased by 3% to 9.0 Mt (30 June 2018: 8.8 Mt), while Nickel production increased by 1% to 19,600 tonnes (30 June 2018: 19,400 tonnes).

Group copper equivalent unit costs were flat in local currency terms as the benefit of the strong performance at MinasRio was offset by the effect of lower production at Metallurgical Coal and Kumba. In US dollar terms, unit costs were 8% lower than for the same period in the prior year, largely due to the weaker South African rand.

 

FINANCIAL PERFORMANCE

Anglo American's profit attributable to equity shareholders increased to $1.9 billion (30 June 2018: $1.3 billion). Underlying earnings were $2.0 billion (30 June 2018: $1.6 billion), while operating profit was $3.3 billion (30 June 2018: $2.4 billion).

 

UNDERLYING EBITDA*

 

Group underlying EBITDA increased by 19% to $5.5 billion (30 June 2018: $4.6 billion). The Group Mining EBITDA margin increased to 46% (30 June 2018: 41%), reflecting strong prices, particularly for iron ore and the PGMs basket.  A reconciliation of 'Profit before net finance costs and tax', the closest equivalent IFRS measure to underlying EBITDA, is provided within note 3 to the Condensed financial statements.

 

Underlying EBITDA* by segment

 

6 months ended

6 months ended

$ million

30 June 2019

30 June 2018

De Beers

518

 

712

 

Copper

789

 

966

 

PGMs

824

 

511

 

Iron Ore

2,036

 

454

 

Coal

996

 

1,640

 

Nickel and Manganese

326

 

420

 

Corporate and other

(38

)

(126

)

Total

5,451

 

4,577

 

Underlying EBITDA* reconciliation for the six months ended 30 June 2018 to six months ended 30 June 2019

The reconciliation of underlying EBITDA from $4.6 billion in the six months ended 30 June 2018, to $5.5 billion in the six months ended 30 June 2019, shows the controllable factors (e.g. cost and volume), as well as those largely outside of management control (e.g. price, foreign exchange and inflation), that drive the Group's performance.

$ billion

 

 

H1 2018 underlying EBITDA*

 

4.6

 

Price

 

0.7

 

Foreign exchange

 

0.5

 

Inflation

 

(0.2

)

Net cost and volume

 

(0.3

)

Minas-Rio

 

0.3

 

Other

 

(0.2

)

H1 2019 underlying EBITDA*

 

5.5

 

Price

Average market prices for the Group's basket of commodities and products increased by 2%, contributing $0.7 billion of improvement to underlying EBITDA. The average realised FOB iron ore price for Kumba's iron ore increased by 57%, outperforming the market index owing to its higher iron content and relatively high proportion of lump ore. The price achieved for the PGMs basket increased by 16%, largely due to palladium and rhodium, which recorded price increases of 39% and 47% respectively. The positive price impact was, however, partly offset by a 27% decrease in the realised price for export thermal coal and a 6% decrease in the realised price for copper.

Foreign exchange

The positive foreign exchange impact on underlying EBITDA of $0.5 billion was largely due to the weaker South African rand.

Inflation

The Group's weighted average CPI for the period was 3%, compared with 4% in the prior period. This was principally influenced by inflationary pressures decreasing in South Africa, with local CPI around 4%. The impact of inflation on costs reduced underlying EBITDA by $0.2 billion.

Minas-Rio

The increase of $0.3 billion on the Group's underlying EBITDA reflects the recovery from the impact of the suspension of operations at Minas-Rio in the first half of 2018.

Net cost and volume

The $0.3 billion negative cost and volume impact was driven by lower volumes in the period, despite solid cost performance, due to extended longwall moves at Moranbah-Grosvenor (Metallurgical Coal), including a preliminary upgrade of the wash-plant which will deliver higher volumes in the second half of the year; unscheduled plant maintenance in the first quarter at Kumba; and a challenging midstream trading environment and slowing consumer demand growth affecting De Beers. These were partially offset by a strong operational performance and focus on cost savings at Copper and the ramp-up of Minas-Rio, over and above the reinstatement of prior performance levels.

UNDERLYING EARNINGS*

Profit for the financial period increased by 52% to $2.5 billion (30 June 2018: $1.6 billion). Group underlying earnings increased to $2.0 billion (30 June 2018: $1.6 billion), owing to a 19% increase in EBITDA, offset by an increase in the profit attributable to non-controlling interests.

Reconciliation from underlying EBITDA* to underlying earnings*

 

6 months ended

6 months ended

$ million

30 June 2019

30 June 2018

Underlying EBITDA*

5,451

4,577

Depreciation and amortisation

(1,436)

(1,402)

Net finance costs and income tax expense

(1,354)

(1,214)

Non-controlling interests

(656)

(396)

Underlying earnings*

2,005

1,565

Depreciation and amortisation

Depreciation and amortisation increased by 2% to $1.4 billion (30 June 2018: $1.4 billion), owing to higher sustaining capital expenditure.

Net finance costs and income tax expense

Net finance costs, before special items and remeasurements, were $0.2 billion (30 June 2018: $0.2 billion).

The underlying effective tax rate was 29.7% for the six months ended 30 June 2019 (30 June 2018: 34.2%). The effective tax rate in 2019 was impacted by the relative levels of profits arising in the Group's operating jurisdictions.  In particular, increased profits in Minas Rio were offset by unrecognised deductible temporary differences reducing the effective tax rate.  In future periods, it is expected that the underlying effective tax rate will remain above the United Kingdom statutory tax rate.

Non-controlling interests

The share of underlying earnings attributable to non-controlling interests of $0.7 billion (30 June 2018: $0.4 billion) principally relates to minority shareholdings in Kumba, Copper and PGMs.

 

SPECIAL ITEMS AND REMEASUREMENTS

Special items and remeasurements are a net charge of $0.1 billion (30 June 2018: net charge of $0.3 billion) and principally relate to operating remeasurements and contract termination costs.

Full details of the special items and remeasurements recorded are included in note 9 to the Condensed financial statements.

CASH FLOW

Cash flows from operations

Cash flows from operations increased to $4.2 billion (30 June 2018: $3.7 billion). An increase in underlying EBITDA from subsidiaries and joint operations was partly offset by higher working capital outflows.

Cash outflows on working capital were $0.7 billion (30 June 2018: $0.1 billion), driven mainly by an increase in receivables, owing to stronger product prices and the restart of operations at Minas-Rio. There was also an inventory increase at Copper principally due to port closures caused by bad weather and, at PGMs, there was a reduction in trade payables following the transition from purchase of concentrate to a tolling arrangement with Sibanye-Stillwater.

Capital expenditure*

 

6 months ended

6 months ended

$ million

30 June 2019

30 June 2018

Stay-in-business

653

 

592

 

Development and stripping

505

 

372

 

Life extension projects(1)

126

 

109

 

Proceeds from disposal of property, plant and equipment

(3

)

(10

)

Sustaining capital

1,281

 

1,063

 

Growth projects(1)

105

 

171

 

Total

1,386

 

1,234

 

Capitalised operating cash flows

-

 

(14

)

Total capital expenditure

1,386

 

1,220

 

(1)     Life extension projects and growth projects are collectively referred to as expansionary capital expenditure.

 

Capital expenditure increased to $1.4 billion (30 June 2018: $1.2 billion). Sustaining capital increased to $1.3 billion (30 June 2018: $1.1 billion), driven by planned additional stay-in-business expenditure across the Group and an increase in capitalised development and stripping expenditure, primarily at De Beers and PGMs.

Expenditure on growth projects principally related to an additional diamond mining vessel at Debmarine Namibia and the ongoing construction of the Lightbox (De Beers) production plant in Oregon, and the preliminary upgrade of the wash plant at Moranbah-Grosvenor (Metallurgical Coal). At the Quellaveco copper project, capital expenditure (on a 100% basis) totalled $0.5 billion, which was fully funded from the syndication transaction with Mitsubishi in 2018, and hence is not included in reported capital expenditure.

In line with previous guidance, total capital expenditure for FY 2019 is expected to be $3.8-$4.1 billion.

Attributable free cash flow*

The Group generated attributable free cash flow of $1.3 billion (30 June 2018: $1.6 billion). Cash flows from operations of $4.2 billion (30 June 2018: $3.7 billion) were offset by increased capital expenditure of $1.4 billion (30 June 2018: $1.2 billion) and higher tax payments of $1.1 billion (30 June 2018: $0.8 billion).

Dividends

In line with the Group's established dividend policy to pay out 40% of underlying earnings, the Board has proposed a dividend of $0.62 per share (30 June 2018: $0.49 per share), equivalent to $0.8 billion (30 June 2018: $0.6 billion).

Share buyback

In line with the Group's commitment to disciplined capital allocation and prioritisation of discretionary capital, the Directors have approved the establishment of up to $1 billion on-market share buyback programme to be executed concurrently on both the London Stock Exchange (LSE) and Johannesburg Stock Exchange (JSE). The Group has made significant progress in deleveraging and strengthening the balance sheet, and given the current levels of cash generated in the business along with the further value potential in Anglo American, the Directors consider it appropriate at this point in time to prioritise returning excess cash to shareholders, through a share buyback programme.

 

 

NET DEBT*

$ million

2019

2018

Opening net debt* at 1 January

(2,848

)

(4,501

)

Underlying EBITDA* from subsidiaries and joint operations

4,936

 

3,895

 

Working capital movements

(725

)

(99

)

Other cash flows from operations

36

 

(54

)

Cash flows from operations

4,247

 

3,742

 

Capital expenditure*

(1,386

)

(1,220

)

Leases

(118

)

-

 

Cash tax paid

(1,143

)

(758

)

Dividends from associates, joint ventures and financial asset investments

301

 

396

 

Net interest(1)

(155

)

(171

)

Dividends paid to non-controlling interests

(421

)

(383

)

Attributable free cash flow*

1,325

 

1,606

 

Dividends to Anglo American plc shareholders

(652

)

(681

)

Disposals

26

 

90

 

Foreign exchange and fair value movements

21

 

(187

)

Other net debt movements(2)

(1,283

)

(314

)

Total movement in net debt*(3)

(563

)

514

 

Closing net debt* at 30 June

(3,411

)

(3,987

)

(1)     Includes cash outflows of $38 million (30 June 2018: inflows of $30 million), relating to interest payments on derivatives hedging net debt, which are included in cash flows from derivatives related to financing activities.

(2)     Includes the IFRS 16 transition adjustment of $469 million, capital expenditure on the Quellaveco project funded from the 2018 syndication transaction and the purchase of shares for employee share schemes.

(3)     Net debt excludes the own credit risk fair value adjustment on derivatives of $3 million (31 December 2018: $15 million).

Net debt (including related derivatives) of $3.4 billion has increased by $0.6 billion since 31 December 2018, representing gearing of 10% (31 December 2018: 9%). Net debt at 30 June 2019 comprised cash and cash equivalents of $7.1 billion (31 December 2018: $6.5 billion) and gross debt, including related derivatives, of $10.5 billion (31 December 2018: $9.4 billion). The increase in net debt since 31 December 2018 was driven by $0.5 billion of additional debt arising from the adoption of IFRS 16 on 1 January 2019. In addition, $0.1 billion of leases have been entered into in the six months ended 30 June 2019.

 

BALANCE SHEET

 

Net assets of the Group increased by $1.4 billion to $31.3 billion (31 December 2018: $29.8 billion) due to the profit for the year and the effects of foreign exchange on operating assets denominated in local currency, offset by dividend payments to Company shareholders and non-controlling interests. Capital expenditure of $1.4 billion was offset by depreciation and amortisation of $1.4 billion.

ATTRIBUTABLE ROCE*

Attributable ROCE increased to 22% (30 June 2018: 19%). Attributable annualised underlying EBIT was $6.1 billion (30 June 2018: $5.1 billion), reflecting higher prices, favourable exchange movements and the restart of operations at Minas-Rio, offset by cost and volume headwinds and inflationary pressures. Average attributable capital employed increased to $27.9 billion (30 June 2018: $27.3 billion) due to changes in accounting treatment arising from IFRS 16.

LIQUIDITY AND FUNDING

The Group's liquidity remains conservative at $16.1 billion (31 December 2018: $13.9 billion), made up of $7.1 billion of cash (31 December 2018: $6.5 billion) and $9.1 billion of undrawn committed facilities (31 December 2018: $7.3 billion). The increase in Group liquidity has been driven by strong positive attributable free cash flow, corporate bond issuances and the addition of further committed facilities.

On 1 January 2019, a committed shareholder loan facility of $1.8 billion from Mitsubishi Corporation became available to Anglo American Quellaveco S.A. to meet Mitsubishi's commitment to fund 40% of remaining capital expenditure on the Quellaveco copper project in Peru.

In March 2019, the Group issued corporate bonds with a US dollar equivalent value of $1.0 billion. The issuances consisted of a 7-year €500 million bond and a 10-year £300 million bond.

These issuances pre-funded the $0.4 billion equivalent bond maturity in June 2019 and maintained the weighted average maturity of outstanding bonds at 5.0 years (31 December 2018: 5.0 years).

During the first half of 2019, the Group extended the maturity date of $4.3 billion of its $4.5 billion revolving credit facility by one year to March 2024.

OUTLOOK

The Group expects to deliver $0.4 billion of cost and volume benefit to underlying EBITDA for 2019. The second quarter saw a recovery in Metallurgical Coal from the impact of longwall moves and refined production at PGMs is also expected to recover during the second half. A further contribution to productivity is anticipated from the continued successful restart at Minas-Rio. The adjusted target from the original $0.5 billion is the result of De Beers' decision to pull back production volume in light of prevailing diamond market conditions. Capital expenditure of $1.4 billion in the six months to end June 2019, excluded $0.5 billion in respect of Quellaveco, which was fully funded by Mitsubishi under the terms of the 2018 syndication transaction. In the second half of the year, the Group expects to begin paying its 60% share of capital expenditure relating to Quellaveco, in addition to funding a number of other stay-in-business and growth projects. Capital expenditure for the second half of the year is expected to be $2.4-2.7 billion, in line with guidance for the year of $3.8-4.1 billion.

 

Anglo American benefits from a range of high margin, high return, fast payback options within its existing portfolio. These options are sequenced over time, depending on their individual stages of feasibility and development, and are skewed towards those products that will supply a cleaner, more electrified world and that satisfy the consumer-led demands of a fast growing and urbanising global middle class.

THE BOARD

 

On 1 March 2019, Anglo American announced the appointment of Marcelo Bastos as an independent non-executive director.  Mr Bastos joined the Board with effect 1 April 2019.

 

As announced in September 2018, with effect from the close of the Annual General Meeting on 30 April 2019, Jack Thompson stepped down from the Board as a non-executive director and chair of the Sustainability Committee. Ian Ashby, a nonexecutive director since 2017, succeeded Mr Thompson as chair of the Sustainability Committee on 30 April 2019.

 

On 24 July 2019, Anglo American announced the following changes to its Board of directors:

 

•     Hixonia Nyasulu will join the Board as a non-executive director with effect 1 November 2019;

•     Nonkululeko Nyembezi will join the Board as a non-executive director with effect 1 January 2020; and

•     Nolitha Fakude, a non-executive director since 2017, will step down from the Board on 31 August 2019 to take up an executive role for the Group as Chairman of Anglo American's management board in South Africa. Ms Fakude will join Anglo American's Group Management Committee as Group Director - South Africa with effect 1 September 2019.

The names of the Directors at the date of this report and the skills and experience our Board members contribute to the long-term sustainable success of Anglo American are set out on the Anglo American website:

 www.angloamerican.com/about-us/leadership-team/board

 

PRINCIPAL RISKS AND UNCERTAINTIES

Anglo American is exposed to a variety of risks and uncertainties which may have a financial, operational or reputational impact on the Group, and which may also have an impact on the achievement of social, economic and environmental objectives.

The principal risks and uncertainties facing the Group at the 2018 year-end are set out in detail in the strategic report section of the Integrated Annual Report 2018. The principal risks relate to the following:

•     Catastrophic risks

•     Political and regulatory

•     Safety

•     Product prices

•     Corruption

•     Operational performance

•     Water

•     Cyber security

•     Future demand for PGMs

•     Future demand for diamonds

•     Natural catastrophe.

The Group is exposed to changes in the economic environment, as with any other business. Details of any key risks and uncertainties specific to the period are covered in the Operations review section.

The Integrated Annual Report 2018 is available on the Group's website www.angloamerican.com.

DE BEERS

Financial and operational metrics(1)

 

Production

volume

Sales

volume

 

Price

Unit

cost*

Group revenue*

Underlying

EBITDA*

Underlying EBITDA margin(6)

Underlying

EBIT*

Capex*

ROCE*

 

'000
cts

'000   
cts(2)

$/ct(3)

$/ct(4)

$m(5)

$m

 

$m

$m

 

De Beers

15,551

 

15,547

 

151

 

62

 

2,647

 

518

 

20

%

324

 

278

 

7

%

Prior period

17,495

 

17,845

162

 

67

 

3,192

 

712

 

22

%

412

 

156

 

8

%

Botswana (Debswana)

11,668

 

-

 

148

 

27

 

-

 

225

 

-

 

198

 

42

 

-

 

Prior period

12,087

 

-

 

155

 

31

 

-

 

263

 

-

 

234

 

34

 

-

 

Namibia

(Namdeb Holdings)

818

 

-

 

552

 

317

 

-

 

80

 

-

 

62

 

27

 

-

 

Prior period

1,044

 

-

 

545

 

272

 

-

 

90

 

-

 

73

 

19

 

-

 

South Africa (DBCM)

953

 

-

 

125

 

62

 

-

 

38

 

-

 

26

 

128

 

-

 

Prior period

2,111

 

-

 

106

 

73

 

-

 

71

 

-

 

2

 

66

 

-

 

Canada

2,112

 

-

 

159

 

49

 

-

 

160

 

-

 

121

 

24

 

-

 

Prior period

2,253

 

-

 

157

 

51

 

-

 

126

 

-

 

52

 

17

 

-

 

Trading

-

 

-

 

-

 

-

 

-

 

96

 

-

 

93

 

-

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

253

 

-

 

249

 

-

 

-

 

Other(7)

-

 

-

 

-

 

-

 

-

 

(81

)

-

 

(176

)

57

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

(91

)

-

 

(198

)

20

 

-

 

(1)   Prepared on a consolidated accounting basis, except for production, which is stated on a 100% basis except for the Gahcho Kué joint operation in Canada, which is on an attributable 51% basis.

(2)   Total sales volumes on a 100% basis were 16.5 million carats (30 June 2018: 18.8 million carats). Total sales volumes (100%) include De Beers Group's joint arrangement partners' 50% proportionate share of sales to entities outside De Beers Group from Diamond Trading Company Botswana and Namibia Diamond Trading Company.

(3)   Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The De Beers realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to De Beers unit costs, which relate to equity production only.

(4)   Unit cost is based on consolidated production and operating costs, excluding depreciation and operating special items, divided by carats recovered.

(5)   Includes rough diamond sales of $2.3 billion (30 June 2018: $2.9 billion).

(6)   Represents the underlying EBITDA margin, including the impact of sale of non-equity product by De Beers.

(7)   Other includes Element Six, downstream, acquisition accounting adjustments and corporate.

 

Financial and operational overview

Underlying EBITDA decreased by 27% to $518 million (30 June 2018: $712 million) due to the challenging midstream trading environment and slowing consumer demand growth, which has resulted in a decrease in the rough diamond price index and realised price, as well as lower margins in the trading business.

Total revenue decreased by 17% to $2.6 billion (30 June 2018: $3.2 billion), with rough diamond sales declining by 21% to $2.3 billion (30 June 2018: $2.9 billion). Consolidated rough diamond sales volumes decreased by 13% to 15.5 million carats (30 June 2018: 17.8 million carats), while the average rough price index decreased by 4%. The lower rough diamond sales reflected higher than expected polished stocks at retailers and the midstream at the beginning of 2019, with overall midstream inventory levels continuing to be high throughout the first half. The average realised rough diamond price decreased by 7% to $151/carat (30 June 2018: $162/carat), driven by the reduction in the average rough diamond price index and a change in the sales mix in response to weaker conditions.

Markets

Demand for rough diamonds was subdued in the first half. In late 2018, US retail results were impacted by stock market volatility and US-China trade tensions which resulted in both retailers and the midstream starting 2019 with higher than anticipated stock levels. During 2019, demand outside the US continued to be impacted by US-China trade tensions, the Hong-Kong protests and a stronger US dollar, particularly affecting China and the Gulf. In the US, retail store closures and destocking have also impacted demand for polished diamonds and, in turn, midstream demand for rough diamonds. Underlying GDP growth remains supportive of consumer demand growth and is expected to bring midstream and retailer stocks back to more normalised levels as we move into 2020, subject to an improving macroeconomic environment.

Operational performance

Mining and manufacturing

Rough diamond production decreased by 11% to 15.6 million carats (30 June 2018: 17.5 million carats), primarily driven by a reduction in South Africa (DBCM) and Botswana (Debswana). As a result of weaker demand experienced in the period, additional production was not ramped up to compensate for Venetia's transition from open pit to underground.

In Botswana (Debswana), production decreased by 3% to 11.7 million carats (30 June 2018: 12.1 million carats). Production at the Orapa Regime was 16% lower following a planned shutdown brought forward from the second half of 2019,  partly offset by a 9% increase at Jwaneng, driven by higher throughput and a deferred plant shutdown.

In Namibia (Namdeb Holdings), production decreased by 22% to 0.8 million carats (30 June 2018: 1.0 million carats). Output from the marine operation declined by 15% due to a planned in-port for the Mafuta crawler vessel. Production at the land operations decreased by 37% to 0.2 million carats (30 June 2018: 0.3 million carats) as a result of transitioning Elizabeth Bay onto care and maintenance in December 2018.

In South Africa (DBCM), production decreased by 55% to 1.0 million carats (30 June 2018: 2.1 million carats), due to lower ore volumes mined at Venetia as it approaches the transition from open pit to underground. Voorspoed production ceased as the operation was placed onto care and maintenance in the final quarter of 2018 in preparation for closure.

In Canada, production decreased by 6% to 2.1 million carats (30 June 2018: 2.3 million carats), due to the planned processing of lower grades at Gahcho Kué. Victor production decreased by 2% as it reached the end of its life during the second quarter of 2019.

Brands

De Beers Jewellers continues to progress by upgrading and expanding its network and integrating its online and store presence into an improved combined offering. The overall sales performance has been adversely affected, primarily in high jewellery, by global trade tensions.

Forevermark™ (available in around 2,400 retail outlets globally) continued its expansion in Europe with the launch of the brand in Italy.

Operational outlook

Rough diamond trading conditions in the midstream are expected to continue to be challenging in the short term as a result of high polished inventory levels. Longer term, the outlook remains positive in light of the expected growth in consumer demand and a reducing supply of diamonds.

Production guidance (on a 100% basis, except Gahcho Kué on an attributable 51% basis) has been revised to around 31 million carats, at the lower end of the previous range of 31-33 million carats, in response to the weaker trading conditions described above.

COPPER

Financial and operational metrics

 

Production

volume

Sales

volume

Price

 

Unit

cost*

Group revenue*

Underlying

EBITDA*

Mining EBITDA margin(2)

Underlying

EBIT*

Capex*

ROCE*

 

kt

kt(1)

c/lb(2)

c/lb(3)

$m(4)

$m

 

$m

$m

 

Copper

320

 

307

 

280

 

135

 

2,676

 

789

 

44

%

469

 

242

 

14

%

Prior period

313

 

306

 

297

 

142

 

2,429

 

966

 

52

%

668

 

368

 

23

%

Los Bronces

183

 

175

 

-

 

135

 

1,008

 

464

 

46

%

291

 

103

 

-

 

Prior period

175

 

172

 

-

 

151

 

1,062

 

544

 

51

%

374

 

89

 

-

 

Collahuasi(5)

112

 

107

 

-

 

121

 

597

 

370

 

62

%

255

 

112

 

-

 

Prior period

115

 

111

 

-

 

116

 

708

 

465

 

66

%

360

 

128

 

-

 

Quellaveco(6)

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

127

 

-

 

Other operations

25

 

25

 

-

 

-

 

1,071

 

32

 

20

%

1

 

26

 

-

 

Prior period

23

 

23

 

-

 

-

 

659

 

33

 

22

%

10

 

24

 

-

 

Projects and corporate

-

 

-

 

-

 

-

 

-

 

(77

)

-

 

(78

)

1

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

(76

)

-

 

(76

)

-

 

-

 

(1)   Excludes 142 kt third-party sales (30 June 2018: 71 kt).

(2)   Realised price, excludes impact of third-party sales.

(3)   C1 unit cost includes by-product credits.

(4)   Revenue is shown after deduction of treatment and refining charges (TC/RCs).

(5)   44% share of Collahuasi production, sales and financials.

(6)     Capex is presented after deducting direct funding from non-controlling interests. H1 2019 capex on a 100% basis was $454 million, which was fully funded by cash from the Mitsubishi syndication transaction in 2018, and hence is not included in reported capex.

Financial and operational overview

Underlying EBITDA decreased by 18% to $789 million (30 June 2018: $966 million), with lower unit costs more than offset by the lower realised copper price, which decreased by 6% to 280 c/lb (30 June 2018: 297 c/lb).

Production increased by 2% to 320,200 tonnes (30 June 2018: 312,900 tonnes) on the back of a strong performance by both Los Bronces and Collahuasi. Sales of 307,300 tonnes were in line with the same period in the prior year, but were 12,900 tonnes lower than production, principally due to port closures caused by bad weather. Unit costs improved by 5% to 135 c/lb (30 June 2018: 142 c/lb), reflecting the ongoing focus on cost reductions, higher production and favourable movements in the Chilean peso.

At 30 June 2019, 149,700 tonnes of copper were provisionally priced at an average price of 274 c/lb.

Markets

 

30 June 2019

30 June 2018

Average market price (c/lb)

280

314

Average realised price (c/lb)

280

297

The differences between market price and realised price are largely a function of the timing of sales across the period and provisional pricing adjustments.

The average LME cash copper price was 11% lower than for the first half of 2018. Trade tensions between the US and China and persistent liquidity tightness in the latter, adversely affected activity in China's key copper consuming sectors, although the impact was mitigated by global supply constraints.

Operational performance

At Los Bronces, production increased by 5% to 182,900 tonnes (30 June 2018: 174,700 tonnes) owing to a strong mine and plant performance, as well as planned higher grades (0.81% vs. 30 June 2018: 0.73%). C1 unit costs decreased by 11% to 135 c/lb (30 June 2018: 151 c/lb) as a result of the increase in production, strong underlying cost performance and favourable movements in the Chilean peso.

At Collahuasi, Anglo American's attributable share of copper production was 112,000 tonnes, a decrease of 3% (30 June 2018: 115,300 tonnes), reflecting planned lower grades (1.18% vs. 30 June 2018: 1.29%). The planned threemonth shut down, to replace a stator motor at the second ball mill on Line 3 (Line 3 has two ball mills and is responsible for 60% of plant throughput), was completed successfully at the end of June. The project forms part of the long term plant improvement initiatives at the operation. Excluding the impact of the planned shutdown, underlying plant performance improved, driven by the successful completion of a similar plant improvement project in the first six months of 2018. C1 unit costs increased by 4% to 121 c/lb (30 June 2018: 116 c/lb), reflecting the lower production.

Production at El Soldado increased by 10% to 25,300 tonnes (30 June 2018: 22,900 tonnes), owing largely to higher planned ore grades (0.88% vs. 30 June 2018: 0.79%). As a result C1 unit costs decreased by 7% to 218 c/lb (30 June 2018: 234 c/lb).

Quellaveco update

Project execution remains on track, with Quellaveco achieving the milestones set for the first half of 2019. Engineering is 75% complete and the majority of contracts and procurement orders are now in place. The 4,000-bed workers' camp has been completed and earthworks are progressing to plan. A significant milestone was achieved with the first major structural concrete placement for the first of the two ball mills. In total, three mass concrete placements for the foundations of the grinding area have now been completed at the plant site.

Priorities for the second half of the year are to progress earthworks, concrete works and construction of the Vizcachas dam; begin excavations for the overland-conveyor tunnel; and prepare for the start of pre-stripping activities in 2020.

The project is on schedule to deliver first production in 2022, with ramp-up in 2023. Quellaveco expects to deliver ~300,000 tonnes per annum of copper equivalent production on average in the first 10 years of operation.

Capital expenditure (on a 100% basis) for the first six months totalled $454 million, which was fully funded from the syndication transaction with Mitsubishi in 2018 and hence is not included in reported capex. Full year capital expenditure guidance (on a 100% basis) remains unchanged at $1.3-$1.5 billion, of which the Group's share is $0.4-$0.6 billion after utilising the remaining capital expenditure funding for Quellaveco from the Mitsubishi syndication transaction.

Operational outlook

The Los Bronces operation has experienced a reduction in water availability and storage owing to the ongoing drought affecting Chile's central region, with the first half of 2019 being one of the driest autumns ever recorded. Production losses resulting from lower water availability are expected to be largely mitigated in 2019 by management initiatives, which include operational efficiency improvements and other contingency actions.

Production guidance for 2019 remains unchanged at 630,000-660,000 tonnes, although low precipitation levels over the Chilean winter and spring remain a risk for production in 2020.

PLATINUM GROUP METALS

Financial and operational metrics

 

Production

volume platinum

Production

volume palladium

Sales

volume platinum

Basket price

Unit

cost*

Group revenue*

Underlying

EBITDA*

Mining EBITDA margin(5)

Underlying

EBIT*

Capex*

ROCE*

 

koz(1)

koz(1)

koz(2)

$/Pt oz(3)

$/Pt oz(4)

$m

$m

 

$m

$m

 

PGMs

992

 

674

 

1,009

 

2,685

 

1,551

 

3,007

 

824

 

38

%

659

 

217

 

29

%

Prior period

1,006

 

699

 

1,117

 

2,318

 

1,591

 

2,755

 

511

 

30

%

328

 

216

 

14

%

Mogalakwena

258

 

281

 

231

 

3,354

 

1,353

 

779

 

442

 

57

%

373

 

119

 

-

 

Prior period

273

 

295

 

241

 

2,887

 

1,400

 

701

 

316

 

45

%

240

 

98

 

-

 

Amandelbult

215

 

99

 

194

 

2,485

 

1,720

 

485

 

126

 

26

%

100

 

26

 

-

 

Prior period

220

 

103

 

204

 

2,345

 

1,764

 

482

 

82

 

17

%

51

 

20

 

-

 

Other operations (6)

191

 

132

 

186

 

2,741

 

1,629

 

499

 

130

 

26

%

74

 

72

 

-

 

Prior period

190

 

130

 

166

 

2,350

 

1,880

 

423

 

27

 

6

%

(33

)

98

 

-

 

Processing and trading(7)

328

 

162

 

398

 

-

 

-

 

1,244

 

162

 

13

%

148

 

-

 

-

 

Prior period

322

 

171

 

506

 

-

 

-

 

1,149

 

116

 

10

%

100

 

-

 

-

 

Projects and corporate

-

 

-

 

-

 

-

 

-

 

-

 

(36

)

-

 

(36

)

-

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

-

 

(30

)

-

 

(30

)

-

 

-

 

(1)     Production reflects own-mined production and purchase of metal in concentrate. Comparative excludes purchase of concentrate volumes now treated under tolling arrangement.

(2)     Sales volumes exclude the sale of refined metal purchased from third parties and toll material. Comparatives include purchase of concentrate volumes now transitioned to tolling.

(3)     Average US$ realised basket price. Excludes the impact of the sale of refined metal purchased from third parties.

(4)     Total cash operating costs - includes on-mine, smelting and refining costs only.

(5)   From 2019 the total PGMs mining EBITDA margin excludes the impact of the sale of refined metal purchased from third parties, purchase of concentrate and tolling.

(6)   Includes Unki, Union (prior to disposal), Mototolo (post-acquisition on 1 November 2018), PGMs' share of joint operations.

(7)   Purchase of concentrate from joint operations, associates and third parties for processing into refined metals, tolling and trading activities.

Financial and operational overview

Underlying EBITDA increased by 61% to $824 million (30 June 2018: $511 million), largely as a result of a 16% increase in the basket price, driven primarily by stronger prices for palladium and rhodium.

Markets

 

30 June 2019

30 June 2018

Average platinum market price ($/oz)

832

 

941

 

Average palladium market price ($/oz)

1,410

 

1,007

 

Average rhodium market price ($/oz)

2,846

1,987

 

US$ realised basket price ($/Pt oz)

2,685

 

2,318

Rand realised basket price (R/Pt oz)

38,305

 

28,695

 

Continued strong prices for palladium, rhodium and the minor platinum group metals outweighed a decline in the platinum price, with the basket price climbing by 16% in dollar terms and 33% in South African rand terms.The average platinum price decreased by 12% due to weak sentiment and continued softness in the Chinese jewellery sector. In contrast, average palladium and rhodium prices strengthened by 40% and 43% respectively owing to strong automotive demand, driven by tighter emissions regulations in key markets.

Operational performance

Total platinum production (metal in concentrate) decreased by 1% to 992,200 ounces while total palladium output was 4% lower at 673,800 ounces, excluding the impact of the transition of Sibanye-Stillwater Rustenburg (Sibanye) material to a tolling arrangement in 2019 (30 June 2018: 227,800 platinum ounces, 114,300 palladium ounces).

Own-mined production

Own-mined platinum and palladium production both decreased by 3% to 664,700 ounces and 511,400 ounces respectively.

Mogalakwena's platinum and palladium production decreased by 5% to 258,300 ounces and 281,000 ounces respectively, primarily due to mining through a higher waste area, as well as a decrease in concentrator throughput and recoveries.

Amandelbult platinum production decreased by 2% to 215,100 ounces and palladium output by 4% to 98,600 ounces due to infrastructure upgrades, exacerbated by power disruptions in the first quarter.

Unki platinum production increased by 2% to 42,400 ounces and palladium production increased by 5% to 37,900 ounces.

The acquisition of the remaining 50% of Mototolo was concluded on 1 November 2018, from which date 100% of production became 'own-mined' production. On a 100% basis, platinum and palladium production decreased by 31% to 49,800 ounces and by 33% to 30,300 ounces respectively, owing to a one-off benefit in the first quarter of 2018 from stockpiled material toll-concentrated at Bokoni, as well as a decline in grade and unprotected industrial action in May 2019.

Joint operation platinum production (split equally between own-mined and purchase of concentrate), excluding Mototolo, decreased by 2% to 198,200 ounces, while palladium production decreased by 3% to 127,200 ounces, due to safety related stoppages at Modikwa, offset by increased output at Kroondal.

Purchase of concentrate

Purchase of concentrate, excluding Sibanye material which transitioned to a tolling arrangement from 1 January 2019, increased by 2% to 327,500 ounces in the case of platinum and decreased by 5% for palladium to 162,400 ounces. This was due to higher production at Bafokeng-Rasimone Platinum Mine and Union mine, offset by lower production from joint operations as outlined above.

Refined production and sales volumes

Refined platinum production (excluding Sibanye toll-treated metal and concentrate purchased from Sibanye) increased by 6% to 923,100 ounces, while refined palladium output increased by 16% to 678,400 ounces.

Platinum sales volumes, excluding refined metals purchased from third parties and concentrate purchased from Sibanye, increased by 2% to 916,000 ounces, while palladium sales increased by 14% to 711,100 ounces. The increase was a result of the higher refined production.

Operational outlook

As previously guided, metal in concentrate production for 2019 is expected to be 2.0-2.1 million ounces for platinum and 1.3-1.4 million ounces for palladium.

IRON ORE

Financial and operational metrics

 

Production

volume

Sales

volume

Price

Unit

 cost*

Group revenue*

Underlying

EBITDA*

Mining EBITDA margin

Underlying

EBIT*

Capex*

ROCE*

 

Mt(1)

Mt

$/t(2)

$/t(3)

$m

$m

 

$m

$m

 

Iron Ore

-

 

-

 

-

 

-

 

3,584

 

2,036

 

57

%

1,819

 

278

 

42

%

Prior period

-

 

-

 

-

 

-

 

1,900

 

454

 

24

%

245

 

153

 

2

%

Kumba Iron Ore

20.1

 

21.4

 

108

 

34

 

2,427

 

1,393

 

57

%

1,241

 

186

 

92

%

Prior period

22.4

 

21.2

 

69

 

35

 

1,590

 

574

 

36

%

417

 

138

 

28

%

Iron Ore Brazil (Minas-Rio)

10.8

 

10.6

 

92

 

21

 

1,157

 

693

 

60

%

628

 

92

 

27

%

Prior period

3.2

 

3.2

 

70

 

n/a

310

 

(74

)

n/a

(126

)

15

 

(6

)%

Projects and corporate

-

 

-

 

-

 

-

 

-

 

(50

)

-

 

(50

)

-

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

(46

)

-

 

(46

)

-

 

-

 

(1)   Minas-Rio production is Mt (wet basis).

(2)     Prices for Kumba Iron Ore are the average realised export basket price (FOB Saldanha). Prices for Minas-Rio are the average realised export basket price (FOB Açu) (wet basis).

(3)     Unit costs for Kumba Iron Ore are on an FOB dry basis. Unit costs for Minas-Rio are on an FOB wet basis and are not disclosed for 2018 due to the suspension of operations.

Financial and operational overview

Kumba

Underlying EBITDA  increased to $1.4 billion (30 June 2018: $0.6 billion), driven by a 57% increase in the average realised iron ore price to $108/tonne (30 June 2018: $69/tonne), a 16% weaker South African rand and a 2% increase in export sales volumes of 19.9 Mt (30 June 2018: 19.5 Mt).

FOB unit costs decreased by 3% to $34/tonne (30 June 2018: $35/tonne) as the benefits from Kumba's ongoing operational efficiencies, the weaker rand and higher capitalised stripping costs more than offset the impact of lower production volumes, inflation-related increases in fuel and maintenance costs, and longer hauling distances.

Sales volumes were 21.4 Mt (30 June 2018: 21.2 Mt), with Transnet's improved rail performance being partly offset by severe weather disruptions to shipments and repairs to a stacker reclaimer at Saldanha port. Total finished stock held at the mines and port reduced to 4.5 Mt (30 June 2018: 6.2 Mt; 31 December 2018: 5.3 Mt).

Minas-Rio

Minas-Rio recorded an underlying EBITDA of $693 million (30 June 2018: $74 million loss), largely reflecting the solid ramp-up following approval to restart the operation in December 2018. Strong prices, cost efficiencies mainly associated with higher recoveries, and lower energy and consumable prices also contributed to the result.

Markets

 

30 June 2019

30 June 2018

Average market price (IODEX 62% Fe CFR China - $/tonne)

91

70

Average market price (MB 66% Fe Concentrate CFR - $/tonne)

106

93

Average realised price (Kumba export - $/tonne) (FOB Saldanha)

108

69

Average realised price (Minas-Rio - $/tonne) (FOB wet basis)

92

70

Kumba's outperformance over the IODEX (Platts) 62% Fe CFR China index was primarily due to the higher iron (Fe) content and the relatively high proportion (approximately 68%) of lump in the overall product portfolio.

Minas-Rio's pellet feed product is also higher grade (higher iron content and lower gangue) than the reference product used for the IODEX 62% Fe CFR China index. The Metal Bulletin (MB) 66 index is, therefore, used when referring to Minas-Rio product.

Operational performance

Kumba

Total production decreased by 11% to 20.1 Mt (30 June 2018: 22.4 Mt), mainly due to unscheduled plant maintenance at Sishen and the infrastructure upgrade of Kolomela's DMS plant, which will continue into the second half of the year.

Production at Sishen decreased by 10% to 13.8 Mt (30 June 2018: 15.3 Mt), and output at Kolomela decreased by 12% to 6.3 Mt (30 June 2018: 7.2 Mt). Following the plant maintenance at Sishen, good progress is being made, with production volumes improving by 13% from 6.4 Mt in the first quarter of 2019, to 7.3 Mt in the second quarter. Waste stripping at Sishen of 83 Mt (30 June 2018: 87 Mt) reflected marginally lower shovel availability in the first quarter of 2019, while at Kolomela waste stripping increased by 17%, as planned, to 31 Mt (30 June 2018: 26 Mt).

Kumba continued to focus on improving the quality of its products in line with the strong demand for high quality iron ore. The average lump:fine ratio remained competitive at 68:32 (30 June 2018: 68:32), while the average Fe quality was 64.3% (30 June 2018: 64.5%). These factors contributed to the higher average realised FOB iron ore price of $108/tonne (30 June 2018: $69/tonne).

Minas-Rio

First half production of 10.8 Mt was driven by a strong operational performance, reflecting the optimisation work undertaken during 2018 while operations were suspended, and access to the Step 3 mining area higher grade ore.

Operational outlook

Kumba

Production guidance for 2019 has been revised downwards slightly to 42-43 Mt (previously 43-44 Mt), owing to a period of unscheduled plant maintenance that affected the first half of 2019. Consequently, an extended period of plant stability is required to ensure that the revised guidance will be met. Waste movement guidance for Sishen and Kolomela is unchanged and is expected to be 170-180 Mt and 55-60 Mt, respectively.

Minas-Rio

Based on the performance achieved in the first half, production guidance for 2019 has increased to 19-21 Mt (previously 18-20 Mt). Unit cost guidance for 2019 has been reduced to $24-27/tonne (previously $2831/tonne), reflecting the higher production volumes and cost efficiencies implemented.

Construction for the next tailings dam lift is under way and works are scheduled for completion during the third quarter. The conversion of the installation licence to an operating licence for this lift is expected by year-end, subject to approval by the Minas Gerais state government in Brazil.

COAL

Financial and operational metrics

 

Production

volume

Sales

volume

Price

Unit

cost*

Group revenue*

Underlying

EBITDA*

Mining EBITDA margin(5)

Underlying

EBIT*

Capex*

ROCE*

 

Mt(1)

Mt(2)

$/t(3)

$/t(4)

$m

$m

 

$m

$m

 

Coal

23.2

 

23.5

 

-

 

-

 

3,204

 

996

 

35

%

607

 

336

 

28

%

Prior period

24.8

 

24.6

 

-

 

-

 

3,877

 

1,640

 

48

%

1,300

 

306

 

77

%

Metallurgical Coal

10.0

 

9.9

 

187

 

68

 

1,880

 

934

 

50

%

638

 

253

 

45

%

Prior period

10.8

 

10.7

 

194

 

66

 

2,089

 

1,157

 

55

%

931

 

219

 

100

%

Thermal Coal - South Africa

9.0

 

9.2

 

64

 

46

 

1,049

 

40

 

4

%

(6

)

83

 

(11

)%

Prior period

8.8

 

8.7

 

88

 

48

 

1,374

 

341

 

36

%

272

 

87

 

65

%

Thermal Coal - Colombia(6)

4.2

 

4.4

 

62

 

36

 

275

 

76

 

28

%

29

 

-

 

7

%

Prior period

5.2

 

5.2

 

79

 

35

 

414

 

190

 

46

%

145

 

-

 

34

%

Projects and corporate

-

 

-

 

-

 

-

 

-

 

(54

)

-

 

(54

)

-

 

-

 

Prior period

-

 

-

 

-

 

-

 

-

 

(48

)

-

 

(48

)

-

 

-

 

(1)     Production volumes are saleable tonnes. South African production volumes include export primary production, secondary production sold into export markets and production sold domestically at export parity pricing and excludes other domestic production of 4.9 Mt (30 June 2018: 7.8 Mt). Included in 2018 is domestic production of 2.8 Mt from the Eskom tied operations, which were sold on 1 March 2018. Metallurgical Coal production volumes exclude thermal coal production of 0.6 Mt (30 June 2018: 0.5 Mt).

(2)     South African sales volumes include export primary production, secondary production sold into export markets and production sold domestically at export parity pricing and exclude domestic sales of 4.4 Mt (30 June 2018: 7.9 Mt) and non-equity traded sales of 5.5 Mt (30 June 2018: 4.7 Mt). Included in 2018 is domestic sales of 2.8 Mt from the Eskom-tied operations, which were sold on 1 March 2018. Metallurgical Coal sales volumes exclude thermal coal sales of 0.7 Mt (30 June 2018: 0.7 Mt).

(3)     Metallurgical Coal realised price is the weighted average hard coking coal and PCI sales price achieved. Thermal Coal - South Africa realised price is the weighted average export thermal coal price achieved. Excludes third-party sales.

(4)   FOB cost per saleable tonne, excluding royalties. Metallurgical Coal excludes study costs. Thermal Coal - South Africa unit cost is for the trade operations.

(5)   Excludes impact of third-party sales and, in 2018, Eskom-tied operations.

(6)   Represents the Group's attributable share from its 33.3% interest in Cerrejón.

Financial and operational overview

Metallurgical Coal

Underlying EBITDA decreased by 19% to $934 million (30 June 2018: $1,157 million), owing to a 7% decrease in sales volumes and a 4% reduction in the realised price for metallurgical coal. US dollar unit costs increased by 3% to $68/tonne (30 June 2018: $66/tonne), as a result of lower production due to a planned extended longwall move at Moranbah.

Thermal Coal - South Africa

Underlying EBITDA decreased by 88% to $40 million (30 June 2018: $341 million), driven by a 27% decrease in the realised export thermal coal price. Export sales increased by 6% to 9.2 Mt (30 June 2018: 8.7 Mt). US dollar unit costs for the export operations decreased by 4% to $46/tonne (30 June 2018: $48/tonne) as productivity improvements and cost savings offset the effects of inflation.

Thermal Coal - Colombia

Underlying EBITDA decreased by 60% to $76 million (30 June 2018: $190 million), reflecting a 22% decrease in prices and lower volumes as a result of dust restrictions.

Markets

Metallurgical coal

 

30 June 2019

30 June 2018

Average market price for premium low-volatile hard coking coal ($/tonne)(1)

205

 

209

 

Average market price for premium low-volatile PCI ($/tonne)(1)

125

 

145

 

Average realised price for premium low-volatile hard coking coal ($/tonne)

195

 

198

Average realised price for PCI ($/tonne)

123

 

129

(1)     Represents average spot prices.

Average realised prices differ from the average market price owing to differences in material grade and timing of contracts.

Market prices remained healthy through the first six months of the year, supported by solid steel production and high steel margins in China, despite Chinese import restrictions and a number of supply disruptions in Australia.

Thermal coal

 

30 June 2019

30 June 2018

Average market price ($/tonne, FOB Australia)

88

104

 

Average market price ($/tonne, FOB South Africa)

74

 

97

 

Average market price ($/tonne, FOB Colombia)

60

 

82

 

Average realised price - Export Australia ($/tonne, FOB)

88

 

99

Average realised price - Export South Africa ($/tonne, FOB)

64

 

88

Average realised price - Domestic South Africa ($/tonne)

15

 

20

Average realised price - Colombia ($/tonne, FOB)

62

 

79

The average realised price for export thermal coal differs from the average market price owing to timing and quality differences relative to the industry benchmark.

Thermal coal prices fell sharply as lower gas and higher carbon prices had a significant effect on coal-generated power in Europe. Coal demand was also muted in Japan, due to an increase in gas-fired generation and, in South Korea, to an improvement in nuclear power availability. Supply, especially out of Indonesia and Russia, increased sharply, leading to higher global coal inventories. An increase in the supply of lower quality coal and delays to customs clearances at Chinese ports widened the discounts between low- and medium-quality coals, including South African and Colombian coals.

Operational performance

Metallurgical Coal

Total production decreased by 6% to 10.6 Mt (30 June 2018: 11.3 Mt), largely due to a planned longwall move at Moranbah, which included a preliminary upgrade of the wash plant that has increased capacity by around 10%.  Production from the other managed operations (excluding Moranbah) increased by around 1 Mt, with higher output at all operations.

Thermal Coal - South Africa

Total production from the Export mines increased by 2% to 11.7 Mt (30 June 2018: 11.4 Mt), despite the planned decrease in production from closing operations. Export production increased by 3% to 9.0 Mt (30 June 2018: 8.8 Mt) and domestic production  increased 4% to 2.7 Mt (30 June 2018: 2.6 Mt). Improved productivity was recorded at all operations, with the exception of Zibulo, which was affected by community unrest in the first half of the year and conveyor belt infrastructure difficulties in the second quarter.

Thermal Coal - Colombia

Anglo American's attributable production from its 33.3% ownership of Cerrejón decreased by 19% to 4.2 Mt (30 June 2018: 5.2 Mt).

Operational outlook

Metallurgical coal

Full year 2019 production guidance for metallurgical coal is unchanged at 22-24 Mt.

Export thermal coal

Full year 2019 production guidance for export thermal coal is unchanged at 26-28 Mt.

NICKEL AND MANGANESE

Financial and operational metrics

 

Production

volume(1)

Sales

volume(1)

Price

Unit

cost*

Group revenue*

Underlying

EBITDA*

Mining EBITDA margin

Underlying

EBIT*

Capex*

ROCE*

 

 

 

c/lb(2)

c/lb(3)

$m

$m(4)

 

$m(4)

$m

 

Nickel and Manganese

-

 

-

 

-

 

-

 

756

 

326

 

43

%

249

 

20

 

20

Prior period

-

 

-

 

-

 

-

 

857

 

420

 

49

%

350

 

15

 

29

%

Nickel

19,600

 

18,600

 

563

 

410

 

232

 

52

 

22

%

1

 

20

 

-

Prior period

19,400

 

20,100

 

632

 

378

 

280

 

88

 

31

%

45

 

15

 

5

%

Samancor(5)

1.8

 

1.9

 

-

 

-

 

524

 

274

 

52

%

248

 

-

 

142

Prior period

1.8

 

1.8

 

-

 

-

 

577

 

332

 

57

%

305

 

-

 

162

%

(1)   Nickel production and sales are tonnes (t). Samancor production and sales are million tonnes (Mt).

(2)   Realised price.

(3)   C1 unit cost.

(4)   Nickel segment includes $5 million projects and corporate costs (30 June 2018: $4 million).

(5)     Production, sales and financials include ore and alloy.

Financial and operational overview

Nickel

Underlying EBITDA decreased by 41% to $52 million (30 June 2018: $88 million), primarily reflecting the lower nickel price and a decrease in sales volumes. Lower opening stocks in 2019 and weaker domestic demand in the second quarter were the main drivers of the 7% decrease in sales.

Nickel unit costs increased by 8% to 410 c/lb (30 June 2018: 378 c/lb), driven mainly by a rise in the consumption of coal as a reductant due to higher iron content in the ore, as well as by a change to the timing of annual maintenance.

Samancor

Underlying EBITDA decreased by 17% to $274 million (30 June 2018: $332 million), mainly attributable to the lower manganese ore price and, to a lesser extent, by a 13% decrease in attributable manganese alloy sales, in line with reduced Australian and South African alloy production.

Markets

Nickel

 

30 June 2019

30 June 2018

Average market price (c/lb)

559

629

Average realised price (c/lb)

563

632

The average market price is the LME nickel price, from which ferronickel pricing is derived. Ferronickel is traded based on discounts or premiums to the LME price, depending on market conditions, supplier products and consumer preferences. Differences between market prices and realised prices are largely due to variances between the LME and the ferronickel price.

The average nickel price decreased by 11% to 559 c/Ib (30 June 2018: 629 c/lb) as subdued market sentiment, predominantly related to the US-China trade dispute, more than offset the effects of solid stainless steel production growth (around 70% of nickel demand) and strong battery growth (zero emission vehicles and lithium-ion based energy storage).

Samancor

The average benchmark price for manganese ore (Metal Bulletin 44% manganese ore CIF China) was $6.33/dmtu, a decrease of 15% (30 June 2018: $7.45/dmtu), as the effects of strong steel output and stricter reinforcing steel standards in China were more than compensated by an increase in manganese ore supply from South Africa.

Operational performance

Nickel

Nickel output increased by 1% to 19,600 tonnes (30 June 2018: 19,400 tonnes), reflecting improved operational stability.

Samancor

Attributable manganese ore production decreased by 3% to 1.70 Mt (30 June 2018: 1.75 Mt). Output from the Australian operations decreased by 9% due to the impact of weather on the processing plant. This was partly offset by a 9% increase in production from the South African operations resulting from improved mining productivity.

Attributable production of manganese alloys decreased by 9% to 76,400 tonnes (30 June 2018: 84,000 tonnes) as a consequence of furnace instability in one of the Australian furnaces in the first quarter, as well as in the single furnace of the South African operation.

Operational outlook

Nickel

Production guidance for 2019 is maintained at 42,000-44,000 tonnes.

CORPORATE AND OTHER

Financial metrics

 

Group

revenue*

Underlying

EBITDA*

Underlying

EBIT*

Capex*

 

$m

$m

$m

$m

Segment

-

 

(38

)

(112

)

15

 

Prior period

2

 

(126

)

(128

)

6

 

Exploration

-

 

(53

)

(54

)

-

 

Prior period

-

 

(48

)

(48

)

-

 

Corporate activities and unallocated costs

-

 

15

 

(58

)

15

 

Prior period

2

 

(78

)

(80

)

6

 

Financial overview

Corporate and other reported an underlying EBITDA loss of $38 million (30 June 2018: $126 million loss).

Exploration

Exploration's underlying EBITDA loss increased to $53 million (30 June 2018: $48 million loss), reflecting increased exploration activities across most product groups, in particular, diamonds, partially offset by reduced drilling activities at Copper.

Corporate activities and unallocated costs

Underlying EBITDA amounted to a $15 million gain (30 June 2018: $78 million loss), driven primarily by a $34 million year-on-year gain recognised in the Group's self-insurance entity and a benefit to EBITDA from the adoption of IFRS 16 as items previously recorded as operating costs are now included within depreciation.

For further information, please contact:

Media

Investors

UK

James Wyatt-Tilby

james.wyatt-tilby@angloamerican.com

Tel: +44 (0)20 7968 8759

UK

Paul Galloway

paul.galloway@angloamerican.com

Tel: +44 (0)20 7968 8718

Marcelo Esquivel

marcelo.esquivel@angloamerican.com

Tel: +44 (0)20 7968 8891

Robert Greenberg

robert.greenberg@angloamerican.com

Tel: +44 (0)20 7968 2124

South Africa

Pranill Ramchander

pranill.ramchander@angloamerican.com

Tel: +27 (0)11 638 2592

Sibusiso Tshabalala

sibusiso.tshabalala@angloamerican.com

Tel: +27 (0)11 638 2175

 

Emma Waterworth

emma.waterworth@angloamerican.com

Tel: +44 (0)20 7968 8574

Notes to editors:

Anglo American is a leading global mining company and our products are the essential ingredients in almost every aspect of modern life. Our portfolio of world-class competitive mining operations and undeveloped resources provides the metals and minerals that enable a cleaner, more electrified world and that meet the fast growing consumer-driven demands of the world's developed and maturing economies. With our people at the heart of our business, we use innovative practices and the latest technologies to discover new resources and mine, process, move and market our products to our customers around the world ‒ safely, responsibly and sustainably.

As a responsible miner ‒ of diamonds (through De Beers), copper, platinum group metals, iron ore, coal and nickel ‒ we are the custodians of what are precious natural resources. We work together with our business partners and diverse stakeholders to unlock the sustainable value that those resources represent for our shareholders, the communities and countries in which we operate, and for society as a whole. Anglo American is re-imagining mining to improve people's lives.

www.angloamerican.com

    

Webcast of presentation:

A live webcast of the results presentation, starting at 9.00am UK time on 25 July 2019, can be accessed through the Anglo American website at www.angloamerican.com

Note: Throughout this results announcement, '$' denotes United States dollars and 'cents' refers to United States cents. Tonnes are metric tons, 'Mt' denotes million tonnes and 'kt' denotes thousand tonnes, unless otherwise stated.

Forward-looking statements:

This announcement includes forward-looking statements. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding Anglo American's financial position, business, acquisition and divestment strategy, dividend policy, plans and objectives of management for future operations (including development plans and objectives relating to Anglo American's products, production forecasts and Ore Reserves and Mineral Resource estimates), are forward-looking statements. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Anglo American, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Anglo American's present and future business strategies and the environment in which Anglo American will operate in the future. Important factors that could cause Anglo American's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of global demand and commodity market prices, mineral resource exploration and development capabilities, recovery rates and other operational capabilities, the availability of mining and processing equipment, the ability to produce and transport products profitably, the availability of transportation infrastructure, the impact of foreign currency exchange rates on market prices and operating costs, the availability of sufficient credit, the effects of inflation, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as permitting and changes in taxation or safety, health, environmental or other types of regulation in the countries where Anglo American operates, conflicts over land and resource ownership rights and such other risk factors identified in Anglo American's most recent Annual Report. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this announcement. Anglo American expressly disclaims any obligation or undertaking (except as required by applicable law, the City Code on Takeovers and Mergers (the "Takeover Code"), the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Conduct Authority, the Listings Requirements of the securities exchange of the JSE Limited in South Africa, the SIX Swiss Exchange, the Botswana Stock Exchange and the Namibian Stock Exchange and any other applicable regulations) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Anglo American's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Nothing in this announcement should be interpreted to mean that future earnings per share of Anglo American will necessarily match or exceed its historical published earnings per share.

Certain statistical and other information about Anglo American included in this announcement is sourced from publicly available third-party sources. As such, it has not been independently verified and presents the views of those third parties, though these may not necessarily correspond to the views held by Anglo American and Anglo American expressly disclaims any responsibility for, or liability in respect of, such third-party information.

Anglo American plc

20 Carlton House Terrace London SW1Y 5AN United Kingdom

Registered office as above. Incorporated in England and Wales under the Companies Act 1985.

Registered Number: 3564138 Legal Entity Identifier: 549300S9XF92D1X8ME4


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Anglo American Interim Results 2019 - RNS