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Anglo American cuts dividend as interim earnings dwindle

Anglo American flagged that the war in Ukraine, and resulting trade sanctions on Russia, had restricted the supply of certain key commodities to the market and caused further disruption to already stretched global supply chains. Picture: Reuters

Anglo American flagged that the war in Ukraine, and resulting trade sanctions on Russia, had restricted the supply of certain key commodities to the market and caused further disruption to already stretched global supply chains. Picture: Reuters

Published Jul 29, 2022

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Anglo American reduced its dividend to its shareholders as the mining giant yesterday reported a 28 percent drop in interim earnings, knocked by supply chain disruptions, extreme weather and inflationary pressures.

Despite this its shares increased on the JSE by 4.46 percent yesterday at R586.69 in morning trade after the company released its interim financial results for the six months ended June 30, 2022.

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Anglo reported basic headline earnings per share of $3.02 (R50) compared to $4.22 in the prior comparative period, with a 28 percent drop in underlying earnings before interest, tax, depreciation, and amortisation (ebitda) to $8.7 billion.

According to Reuters, they still beat an average ebitda forecast of $8.56 bn from 10 analysts compiled by research firm Vuma.

Anglo declared an interim dividend of $1.24 a share, down 27 percent from last year's $1.71 per share interim payout.

Anglo chief executive Duncan Wanblad said: “As we progressed through the first half, we began to regain operational momentum while also adjusting to the considerable challenges posed by Covid-19-related absenteeism, disrupted supply chains and logistics corridors, weather extremes and geopolitically-led economic volatility.”

In the period under review, the group said its underlying earnings were $3.8bn, down from $5.3bn compared to June 30 last year, while operating profit was $6.7bn compared with $11bn. Its net debt was $4.9bn.

“The war in Ukraine, and resulting trade sanctions on Russia, have restricted the supply of certain key commodities to the market and caused further disruption to already stretched global supply chains,” Anglo American said.

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This had resulted in higher prices for energy, agricultural and other commodities, exacerbating broader inflationary pressures across the global economy and contributed to more aggressive interest rate rises by central banks than had been expected and an associated strengthening of the dollar.

Average market prices for the group’s basket of products decreased by 2 percent compared with the first half of 2021.

Wanblad said attributable free cash flow of $1.6bn was driven largely by strong prices in the first quarter that declined towards the end of the period in tandem with increasing cost inflation.

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According to the miner, the impact of adverse weather and planned lower grades at many of its operations contributed to a 9 percent production decrease on a copper equivalent basis.

“Extreme rainfall in Brazil, South Africa and Australia affected iron ore production at Minas-Rio and Kumba, steel-making coal at Capcoal and Dawson, PGMs production at Mogalakwena, and nickel production at Barro Alto,” it said.

The suspended Grosvenor operation (steel-making coal) restarted in February and ramped-up well during the period, as did the Benguela Gem diamond recovery vessel (De Beers) and Aquila (steel-making coal).

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“Adding to our forecast, copper production in the second half is the newly commissioned Quellaveco project in Peru, which delivered its first copper concentrate in July as it nears completion ahead of receiving final regulatory clearance for commercial operations to begin,” the group said.

De Beers’ rough diamond production increased by 10 percent to 16.9 million carats, reflecting strong operational performance and higher planned levels of production to meet continued strong demand for rough diamonds.

Copper production of 273 400 tons was 17 percent lower than the prior period.

Nickel production decreased by 5 percent to 19,00 tons, primarily due to lower ore grades as a result of licensing delays that are now resolved, as well as the impact of heavy rainfall.

Platinum group metal production (metal in concentrate) decreased by 4 percent to 1 987 500 ounces, principally due to lower grade at Mogalakwena, partially offset by increased production from Mototolo, Unki, and Amandelbult.

Iron ore production decreased by 14 percent to 27.5 million per ton. At Kumba, production decreased by 13 percent to 17.8 million per ton, the group said.

Looking forward, Wanblad said growing the value of Anglo American’s business by progressing asset development options was the foundation of the company’s organic margin-enhancing volume growth potential of 30 percent over the next decade.

“More than a third of this growth comes from our newly commissioned Quellaveco copper operation,” he said.

BUSINESS REPORT

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