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Anglo American delivers bumper annuals but cuts guidance on copper as Russia invades Ukraine

Anglo American chief executive Mark Cutifani said yesterday that the diversified resource group’s “return on capital employed of 43 percent was well above our targeted 15 percent”. Photo: Reuters

Anglo American chief executive Mark Cutifani said yesterday that the diversified resource group’s “return on capital employed of 43 percent was well above our targeted 15 percent”. Photo: Reuters

Published Feb 25, 2022

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ANGLO American soared to a 43 percent return on capital, boosting its final dividend for 2021 to $1.18 (R18.21) per share as stronger commodity prices and firmer demand helped it beat global economic disruptions and slowdown from the pandemic.

Shares in the firm traded 2.66 percent firmer at R74.40 in afternoon trade on the JSE. Commodities, such as gold and oil have been trending higher owing to the escalation of the dispute between Ukraine and Russia. The diversified resource group has had to cut its guidance on copper on supply risks on the back of Russia’s attacks on Ukraine early yesterday.

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Preston Narainsamy, a portfolio manager at Nedbank private wealth, told Business Report that although Anglo American’s share price had inched up on the JSE, this was “primarily on the back of commodities in general having a strong day as opposed to the results” from the company.

Anglo American “trades at a premium relative to peers, given their diverse portfolio mix as well as strong growth” profile.

Notwithstanding this, Anglo American chief executive Mark Cutifani said yesterday that the diversified resource group’s “return on capital employed of 43 percent was well above our targeted 15 percent”, leading to a final dividend of $1.18 per share. This was in addition to a special dividend of $0.50 per share, bringing Anglo American’s total return to shareholders for 2021 to $6.2 billion.

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For the year ended December 31, 2021 revenues surged 63 percent to $41.5bn in spite of an unfavourable year-on-year foreign exchange impacts on its underlying Ebitda, which surged by $10.8bn to $20.6bn for the period under review. The group operated against the backdrop of “stronger local currencies in our countries of operation, principally the South African rand” which however has been volatile in the past few months.

“The company beat own dividend expectations, declaring a special dividend as well. The business lowered debt by quite a bit (now sitting at a 0.2x net debt to Ebitda ratio) as working capital inflows were better than the market anticipated,” explained Narainsamy.

Cutifani said the group – which operates across diamond, platinum, manganese and iron ore, among others – had recorded strong demand and prices for many of its products as economies recouped lost ground, spurred by “government stimulus” packages.

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Copper and platinum group metals – essential to the global decarbonisation imperative – and premium quality iron ore for greener steel-making, supported by an improving market for diamonds, all contributed to a record financial performance, generating underlying Ebitda of $20.6bn.

Its De Beers unit increased diamond production by 29 percent to 32.3 million as it capitalised on strong recovery in consumer demand, following the impact of Covid-19 in 2020. Copper production on the other hand was in line with the prior year at 647 200 tonnes.

Production under the Anglo Platinum unit expressed as metal in concentrate was 13 percent stronger at 4 298 700 ounces, reflecting the impact in 2020 of the temporary shutdown of operations in response to the Covid-19 pandemic, the improved mining performance at both Amandelbult and Mogalakwena, as well as processing stability.

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Capital expenditure for the period was up at $5.2bn compared to $4.1bn a year earlier “as comprehensive response plans partially mitigated the impact of the Covid-19 pandemic, which affected spend” in 2020.

Anglo American has, however, finalised its exit from thermal coal assets after it concluded the demerger of Thungela and Cerrejon earlier this year. The Quellaveco copper mine in Peru “is on track to achieve first production in mid-2022”.

BUSINESS REPORT

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