ANGLO American announced a 28 US cents per share interim dividend maintaining its 40% payout ratio despite registering a 39% decline in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $3.4bn.
Basic headline share earnings came in at 49 cents compared to $1.48/share in the comparative period. Profit attributable to shareholders was $500m for the six months, a heavy slide of 75% or nearly $1bn compared to $1.9bn in 2019.
The major features of the period were the under-performance of De Beers, the diamond miner and marketer in which Anglo has an 85% stake. It narrowly avoided a loss posting a mere $2m in EBITDA, a dramatic $516m year-on-year decline.
De Beers will today articulate with staff plans to restructure the business. The changes, which may involve job losses, will cut across the breadth of the company from recovery of diamonds through to customer sales.
Mark Cutifani, CEO of Anglo American, said De Beers had suffered “acute disruption” as a result of the Covid-19 pandemic which has restricted international travel and therefore all but halted diamond sales.
“As the global economy recovers, PGMs (platinum group metals), copper and iron ore are all particularly well positioned, while De Beers, as the world’s leading diamond business, is taking all appropriate steps to address the effects of acute disruption,” he said.
But he remained bullish about De Beers’ long-term prospects. Over the last seven to eight years De Beers had delivered a sustainable 10% free cash flow and a return on capital employed of 15%, said Cutifani. “Yes, this is a tough moment, but gee all commodities are having a tough moment. It is a tough place to be.”
Commenting broadly on the mining market, Cutifani said that the past six months had been “… nothing like I’ve seen in 40 years in the industry”. Anglo’s performance had been “credible in that context although we’ve had our challenges,” he said. Commenting on the dividend payment, he said there was “no reason to cut the dividend”.
“We certainly believe the second half will be stronger, forward looking on copper, PGMs and De Beers which will all picki up,” he said.
Nonetheless, the turndown in Anglo’s interim fortunes contributed towards an increase in net debt. As of June 30, it totalled $7.6bn (2019: $3.4bn). During the six months, Anglo had invested $1.4bn in the acquisition of Sirius Minerals, a fertiliser development firm and the development of its Quellaveco copper project in Peru, said Cutifani.
There was also capital build owing to lack of refined platinum sales from its 80%-owned Anglo American Platinum (Amplats) where technological failures knocked out its refining capacity for most of the six months. De Beers was also unable to sell diamonds. “Sales have lagged production 20% to 30%, so it will depend on how the diamond market will picks up,” said Cutifani on Anglo’s prospects of clearing inventory.
Group-wise production levels were back at 90% as of end-June as the company recovered from Covid-19 related lockdowns imposed across its operations globally. Overall, group production fell 11% year-on-year which compares to hours lost of some 20% which Cutifani said was “a credible” performance. “In April, production was down 40% when we were impacted by the lockdowns,” he said.
The development of Quellaveco had not been so far heavily affected by Covid-19, said Cutifani. “It will be delivered in 2022. We will make adjustments to take account of cost of Covid-19, but the project is in good shape,” he said.
Anglo said on April 23 it had cut capital costs $1.5bn as part of its response to the Covid-19 pandemic, including reducing by up to $300m development work for three months on Quellaveco. During the first ten years of full production, Quellaveco is forecast to produce 300,000 tons per year at a cash cost of $1.05 per pound of copper.