Anglo American spies further savings

Anglo American (AAL) is thinking and acting more like a miner. Last year, $1.1bn (£793m) of the $8.8bn it generated in underlying cash profits came from cost and volume improvements. That beat targets, and brought total annual cost savings to $4.2bn in five years. Apparently, there’s a lot more to come; chief executive Mark Cutifani believes “further operating gains and selected organic growth options” can shave another $3bn-$4bn off costs by 2022.

This message is usefully timed. Anglo is in front of the big four London-listed miners in recent months, thanks in no small part to hopes for a more stable South African mining environment under president Cyril Ramaphosa. But improved sentiment has also boosted the value of the rand against an already weakening dollar, raising local overheads above the weighted average cost inflation for the group.

Foreign exchange movements will keep investors on their toes in 2018. A stronger Chilean peso and rand accounted for the bulk of the 7 per cent increase in group copper equivalent unit costs last year, and wiped $0.7bn from underlying cash profits. Uncertainty here helps explain Anglo’s focus on net debt, which halved to $4.5bn. From this leaner position, the group has improved its chances of keeping up distributions at their currently elevated levels, while boosting capital expenditure from $2.2bn to as much as $2.8bn this year.

This outlay looks set to include $200m to increase production at the Marine Namibia offshore diamond vessel, and a similar investment to boost capacity at the Moranbah Grosvenor metallurgical coal plant, both of which promise high internal rates of return.

On average, analysts are asking for adjusted pre-tax profits of $5.58bn and EPS of $2.51 in 2018, compared with $5.65bn and $2.60 last year.