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Anglo American hits record profit, passes it on to shareholders

Chinese metals demand drives huge profits for diversified miner
Anglo American hits record profit, passes it on to shareholders

Anglo American (AAL) has often existed in the shadow of the world’s two biggest miners, BHP (BHP) and Rio Tinto (RIO), though it operates a more diversified portfolio that offers more safety during downturns but also slower reactions in bull runs. 

Its interim results show it has finally hit its straps, recording a record interim underlying cash profit figure of $12bn (£8.6bn), almost triple last year’s figure. Copper, platinum group metals (PGM) and iron ore were the key drivers for this profit level. 

“The first six months of 2021 have seen strong demand and prices for many of our products as economies begin to recoup lost ground, spurred by stimulus measures across the major economies,” said chief executive Mark Cutifani. 

Anglo will hand shareholders $2.1bn through its interim dividend, as well as $1bn through a special dividend and another $1bn in buybacks. 

A big pay-out was seen to be in the offing given strong results at listed Anglo subsidiaries Anglo American Platinum (SA:AMS) and Kumba Iron Ore (SA:KIO), which were running hot based on PGM and iron ore prices. Anglo’s in-house iron ore mine, Minas-Rio, although production on the latter was below expectations because of “unplanned maintenance”. 

Overall, iron ore production was up 3 per cent on last year to 31m tonnes (t), while copper climbed 5 per cent to 330,000t. The divisions’ underlying cash profit contributions climbed 169 per cent and 174 per cent respectively. Platinum group metals (PGM) production climbed 28 per cent and its underlying cash profit contribution of $4.4bn was seven times the figure from last year.

Alongside the production increases, Anglo has boosted its cost forecasts for the rest of the year, led by Amplats on a quarter increase to $870 per PGM ounce, iron ore with a 17 per cent increase and diamonds climbing 13 per cent. Finance chief Stephen Pearce said the company was coming up against the consequences of lower mining volumes, largely because of the pandemic, saying it was a major achievement the company had reached 95 per cent production capacity. 

Looking ahead, Anglo has the Quellaveco copper mine coming into production next year, which will add around 10 per cent to the company’s total mined output. 

Further out, Cutifani said the company was progressing with the former Sirius Minerals project Woodsmith. “We’ll be going forward with this project, I believe,” he said. The miner will announce a firmer strategy for the North Yorkshire fertiliser project in early 2022. 

Consensus estimates compiled by FactSet see earnings per share hitting 710¢ for the full year, quadruple last year's figure. 

Anglo’s more diversified portfolio than Rio and BHP insulates it from a forecast drop in iron ore prices in the next 12 months. The sale and spinoff of thermal coal assets at a time when that market is running hot looks like a good long-term call as well. Buy. 

Last IC View: Buy, 3,049p, 13 Apr 2021

ANGLO AMERICAN (AAL)   
ORD PRICE: 3,278pMARKET VALUE:£ 40bn
TOUCH:3,278-3,279p12-MONTH HIGH:3,509pLOW: 1,755p
DIVIDEND YIELD:5.3%PE RATIO:8
NET ASSET VALUE:2,408¢NET DEBT6%
Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
2020 (rebased)10.21.5638.028.0
202121.810.7418171
% change+114+586+1000+511
Ex-div:19 Aug   
Payment:24 Sep   
£1 = $1.39 NB: 2021 dividend does not include 80¢ special dividend