ii view: Anglo American cuts dividend as profits tumble

Falling commodity prices and rising costs have hit this FTSE 100 miner. We assess prospects. 

First-half results to 30 June

• Revenue down 17% to $18.11 billion
• Profit attributable to shareholders down 29% to $3.68 billion
• Interim dividend down 27% to $1.24
• No special dividend (H1 2021: $0.80 per share)
• Net debt up 26% from the start of the year to $4.85 billion

Chief executive Duncan Wanblad said:

“Looking ahead, growing the value of our business by progressing asset development options is the foundation of our organic margin-enhancing volume growth potential of 30% over the next decade. More than a third of this growth comes from our newly commissioned Quellaveco copper operation. 

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“With our customer proposition almost entirely oriented around future-enabling metals and minerals, we are well positioned to play a critical role in the decarbonisation of global energy and transport systems, alongside good progress in meeting our own ambitious emissions targets, thereby delivering enhanced value for our shareholders and stakeholders across society.”

ii round-up:

Diversified miner Anglo American (LSE:AAL) today cut its interim dividend as both revenues and profits fell due to a retreat in commodity prices on recession concerns and as operational costs rose. 

Revenues for the six months to the end of June fell 17% to $18.1 billion, triggering a 29% drop in profit to $3.68 billion and 27% cut in the interim dividend to $1.24 per share. However, that was in line with management’s 40% payout policy and was better than City estimates for nearer $1.15 per share. It also came the day after rival Rio Tinto (LSE:RIO) cut its dividend payout. 

Anglo shares gained by more than 4% in UK trading having fallen by close to 10% year-to-date coming into these latest results. Shares for Chilean copper miner Antofagasta (LSE:ANTO) are down by around 16% in 2022, while shares for miner and trader Glencore (LSE:GLEN) are up a fifth.

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The realised price for Anglo’s biggest earner Platinum Group Metals (PGM) fell by 7% year-over-year as production retreated 4% to 1,987,500 ounces given lower ore grades. The price of iron ore, another major earner, fell by just over a third from a year-ago with production down 14%, hindered by heavy rainfall. 

Economic growth for the world’s second biggest economy and major commodity user China grew by just 0.4% during the second quarter, below forecasts of around 1%.    

Anglo’s realised price for copper fell 13% year-over-year as investors worried about recession. Copper production during the half retreated 17% to 273,400 tonnes, challenged by lower ore grades and lower water availability. 

A third quarter production update is scheduled for 27 October.    

ii view:

Headquartered in London, Anglo American is a major diversified mining company. Founded in 1917, it has operations in Brazil, South Africa, Chile, Peru, Colombia, Botswana, Namibia, and Australia. PGMs generated its largest slug of profit over its last financial year at around 34% of overall adjusted group earnings, closely followed by iron ore at around 33% and copper at about 19%. Group expansion projects include its Quellaveco copper mine in Peru and its Woodsmith polyhalite project in the UK. Polyhalite is used to make farming fertilisers. 

For investors, concerns regarding the health of the global economy and its appetite for commodities cannot be dismissed. Costs have risen as inflation has hit multi-decade highs, Western geopolitical tensions with major customer China have heightened, while a cut to the dividend and a lack of any special payout will clearly not be welcomed by income focused investors. 

More favourably, Anglo's diversity of commodities contrasts with the more focused portfolios at rivals such as Fresnillo (LSE:FRES). Its health and safety record has in more recent year’s been high on management’s agenda, while a push towards climate change-friendly products and away from thermal coal is underway. On balance, and while there are better dividends to be had elsewhere in the sector, there are still enough reasons for longer term investors to at least consider Anglo American. 

Positives: 

• A diversity of commodity products 
• Expanding copper production 

Negatives:

• Uncertain economic outlook
• Operations are subject to the weather

The average rating of stock market analysts:

Strong hold