Anglo American reported full year revenue of $35.1bn, down 15%. Underlying cash profit (EBITDA) fell 30% to $14.5bn. Declines were driven by a fall in production volumes, lower prices for iron ore and copper, as well as higher production costs.
A $1.7bn impairment charge was recognised in association with the Woodsmith project, due to extended development schedule and budget. The new Quellaveco mine delivered its first copper concentrate during the year, with full capacity expected at some point this year.
Free cash flow fell from $7.8bn to $1.6bn, largely due to lower profits. Net debt rose $3.1bn, ending the year at $6.9bn.
The board declared a final dividend of $0.74 per share, in line with the 40% payout policy. Total returns for the year were down 60%.
The shares were down 1.4% in early trading.
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Our view
Anglo is the latest miner to see its top and bottom line take a hefty hit as key commodity prices came down from 2021 highs and costs pushed higher. But it's worth taking a step back and remembering the comparable year, 2021, saw record highs for a range of key commodity prices.
At current levels, prices are still plenty high enough for miners like Anglo to make a good chunk of cash. Return on capital employed, a measure of profitability, of 30% over the latest year was double the groups ongoing average target of 15%, so times are still good.
Nevertheless, the environment is getting tougher and more volatile weather conditions are causing disruptions at mines. All in, recent production guidance saw downgrades across the board.
Looking at Anglo's operations, there's plenty to like.
Its strategy of diversifying between industrial and consumer products makes sense. Demand for industrial commodities, like iron ore and coal, is very economically sensitive because when conditions are tough plans for new factories and skyscrapers quickly get scrapped. Consumer demand, like that for the DeBeers diamond business, is generally more reliable and can help to pick up the slack in cyclical downturns.
We're supportive of the diverse asset mix, many of which help contribute to the global de-carbonisation effort, which should be a longer-term growth driver too.
In particular, the expansion of its Quellaveco copper mine is on time and more importantly, on budget. We're also excited about the potential for the Woodsmith project, which will give a fresh avenue into crop nutrients. It's a massive deep mine project, which means getting the planning and build done well is key. That's why the group took a hefty impairment charge in 2022, as the cost and timeline had to be pushed further out.
Delays and impairments aren't ideal, but for a project that expected to be a cornerstone of the business for decades to come - we're happy put this down as a minor blip.
Looking to the balance sheet, net debt only equates to a fraction of cash profits. And at this level of debt, that'll still be the case even if profits come down in the future. That also supports a payout policy of 40% of profits, which at this level are still attractive. Though remember, that means if profits drop returns follow suit and there are no guarantees.
Over the long term, the diversified approach means it isn't beholden to the fortunes of a single commodity price and we see that as an attractive proposition. But that's not to say that a severe economic downturn wouldn't dent Anglo's performance.
Anglo American key facts
All ratios are from Refinitiv. 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.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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