Anglo American capex on the up

There’s a case to suggest that Anglo American (AAL) has found that balance, and is the most likely of its peers to outwit the bear family. Preliminary results for 2018 offer decent evidence for that argument.

Despite a rise in inflation and the major production stoppage at Minas Rio, Anglo’s return on capital employed held firm at 19 per cent, thanks to rising volumes and prices. And while free cash flow softened to $3.2bn (£2.5bn), this was largely due to inventory build-up, the timing of tax payments and an increase in capital expenditure above the peer-group average.

This year, sustaining and growth spending is expected to increase by as much as 46 per cent to $4.1bn, after using the remaining funding provided by Mitsubishi’s farm-in to the Quellaveco copper project in Peru. Approval of the low-cost, fast-payback diamond project offshore Namibia also looks imminent.

Unlike BHP, Anglo resisted the temptation to sweeten these results with dividend largesse, holding to a 40 per cent underlying earnings payout policy, and instead choosing to cut net debt by a further 37 per cent to $2.8bn. Share buybacks are notably absent.

Productivity – rather than returns – remains the watchword. In six years, and on a copper-equivalent basis, Anglo has boosted output by 10 per cent from half the number of assets, while knocking 26 per cent off unit costs. Consequently, productivity per employee has doubled in the period, which suggests investors should take seriously ambitions to deliver another $3.5bn of further cost savings by 2022.

It wasn’t all positive. The five deaths at Anglo’s operations in 2018 may have been the lowest since the miner started aggregating group-wide figures – and below the shocking average of 24 a year between 2003 and 2017 – but the safety record was still bad enough for the launch of an emergency taskforce to better understand major incidents.

In 2019, consensus forecasts are for adjusted earnings of $2.60 a share, up from last year’s estimate of $2.39.