Anglo American reported a 13% drop in first half revenue to $15.7bn. Underlying cash profit (EBITDA) fell 41% to $5.1bn, reflecting a 19% drop in prices and a slight increase in costs which were offset to some degree by a 10% rise in production volumes.
Production volumes were given a boost by a 42% jump in copper production as the Quellaveco mine in Peru ramped up, offsetting declines at other sites. Iron ore assets in Brazil and South Africa, as well as steelmaking coal, also contributed to production growth.
There was a free cash outflow of $466m and net debt rose $1.9bn over the half to $8.8bn.
The second half is expected to see a significant step up in production. Cost controls are in focus and there's expected to be a $0.3bn drop in growth investment compared to previous full-year guidance.
The board has proposed a $0.55 dividend, in line with the policy of paying out 40% of profits.
The shares rose 1.7% in early trading.
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Our view
Half year results didn't produce too many surprises. Prices of key commodities have come down which is really the key driver of performance for a miner when the moves are as significant as we've seen. But that's also part and parcel of the industry, so it's important to take a step back.
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 starting to deliver. 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 is rising but still only equates to a fraction of cash profits. That also supports a payout policy of 40% of profits, which at this level still gives attractive returns. 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. Focus turns to the second half, where production is expected to ramp up, that offers opportunity given the valuation has come down this year, but also adds pressure to deliver.
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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