Anglo American’s first half revenue fell 7% to $9.0bn, driven by lower copper and diamond production. Rough diamond prices fell 23% with other commodities prices broadly stable.
Underlying cash profit (EBITDA) dropped 20% to $3.0bn, largely due to poor performance at De Beers. Margins in the core business were steady at 43%.
Free cash flow rose by $0.1bn to $0.3bn, with reduced cash generated by the business more than offset by a fall in capital expenditure. Net debt fell slightly to $10.8bn.
There were no changes to full-year guidance. Copper production is expected to lag 2024 levels due to lower grades being mined in Chile.
The first half saw the demerger of Valterra Platinum, and sales of the steel and nickel businesses are now agreed. Work to separate De Beers is currently underway.
The interim dividend was cut by 83% to $0.07 per share.
The shares were down 4.4% in early trading.
Our view
Anglo American’s core businesses put in a resilient first half performance. But a slump in copper prices on results day contributed to a negative reaction from the market.
The reversal in recent gains in the russet-coloured metal came after Donald Trump exempted refined metals from a 50% tariff band. Traders had been stockpiling ahead of the expected tax increase. The policy shift caught the market off guard and is likely to depress demand for the immediate future. Longer term lower tariffs should be a positive, but macroeconomic uncertainty remains a risk to be wary of.
The group’s portfolio reshuffle is pushing on at pace. Management aims to create a more agile and streamlined business with a focus on copper, premium iron ore, and crop nutrients. Sales have been agreed for the steelmaking coal and nickel assets, at what looks like decent prices.
The demerger of Valterra Platinum leaves Anglo with a stake worth around $1.8bn. There are plans for a similar transaction in diamonds but challenging conditions could impact the value at which it comes to market.
Broadly speaking we’re supportive of the moves. Once complete Anglo’s production will be a roughly 60/40 split between copper and iron ore. These are two areas we’ve liked for some time. For copper, there are plans in place to increase production although there are some short-term headwinds to monitor.
The iron ore portfolio is set to expand with the Vale deal adding a high-quality resource base to the Minas-Rio mine. That will take time to come onstream but for now process improvements are keeping output moving in the right direction.
Then there’s Woodsmith, an exciting crop nutrient asset currently in the early stages of development. The breaks have been put on, the asset value impaired several times, and investment is set to slow from previous plans. We think this is another good move, the best outcome is for Anglo to bring on a partner to share in the development costs, and the risks.
Sentiment toward Anglo has seen a step change improvement over the past year, from depressed levels. We think that’s justified, with the new strategy having a good chance at unlocking value, and the proposition of a more streamlined Anglo focused on copper and iron ore is attractive.
But executing such a huge reshuffle brings a host of risks. The near term has become quite tricky to map, and investors should prepare for volatility.
Environmental, social and governance (ESG) risk
Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, Anglo American’s management of material ESG issues is strong.
Climate targets include carbon neutrality across operations by 2040. There are also targets for a 30% improvement in energy efficiency and a 50% reduction in freshwater withdrawal against 2016 levels in water scarce areas by 2030. There is a strong renewable energy programme, which is expected to fully meet energy needs in Chile, Brazil, Peru and South Africa.
Anglo American key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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