Wanblad says “choppy” market hard to call as Anglo posts slide in first half earnings

Duncan Wanblad, CEO, Anglo American

LOWER volumes, inflationary pressure and a decline in prices resulted in a reversal of fortune for Anglo American which today reported attributable profit for the six months ended June of $3.7bn – a 28% fall over the previous period.

Duncan Wanblad, CEO of Anglo American since April, said a “choppy macro environment” bore down on the group. In addition to 7.2% cost inflation, compared to 3.3% previously, there was an average 2% decline in prices, partly related to a slowdown in China growth where Anglo sells about a quarter of its total minerals output.

Anglo’s realised prices for iron ore fell 36% while copper and PGMs fell 13% and 7% lower respectively during the period.

“It is very volatile times out there and quite difficult to predict in the short run which way this is going to go,” said Wanblad in a call to media.

“Fundamentally China is an important market to all of us. I think China is well poised to stimulate at some point in time. Whether that’s in six months or six months after that it is very likely to happen,” he said.

Mineral and metal price declines accounted for $1.5bn of the total $3.4bn decline in Anglo’s underlying earnings before interest, tax, depreciation and amortisation (ebitda) which came out at $8.7bn for the six months – the second highest ever achieved by the group.

Disappointing mine production in the first quarter also fed through into unit cost inflation. While the group had “momentum now” in terms of production, Anglo CFO Stephen Pearce acknowedged global inflation had “come through more strongly than originally anticipated at the beginning of the year”.

“We’ve got quite strong growth in volumes planned in the second half of the year. I would love to think that will give us some positive tailwinds in our unit cost position,” he said.

The net impact of cost increases and volume declines accounted for a $1.4bn reduction in Anglo’s underlying Ebitda for the period.

War in Ukraine, a Covid-19 related lockdown in China and inflation in the US has raised the prospect of a major slow down in the world economy including the prospect of recession.

“Absenteeism as a result of Covid was at its highest in the first quarter and this naturally causes disruption to operating routines,” said Wanblad. “We are adapting to this new normal. Stability to our operating models is going to be key.”

Strangled supply lines and rain “too much of it and too little” negatively affected the mines during the six months, he said.

In line with its 40% payout policy, Anglo announced a $1.5bn interim dividend, equal to $1.24/share. It last year paid out $4.1bn at the interim stage, including a special dividend, but that was amid sky-high prices for metals and minerals.