Anglo American to buy back $1bn of shares after record first half

Anglo American PLC updates

Anglo American will return $4.1bn to shareholders after surging commodity prices helped the miner record the best half-year profits in its 104-year history.

The London-listed company reported pre-tax profits of $10.1bn for the six months to June, from $1.7bn in the same period a year ago, on revenue of $21.7bn. It declared dividends of $3.1bn, or $3.31 cents a share, and said it would repurchase $1bn of shares.

“The first six months of 2021 have seen strong demand and prices for many of our products as economies begin to recoup lost ground, spurred by stimulus measures across the major economies,” said Anglo chief executive Mark Cutifani. “The share buyback should tell you that we don’t think this is as good as it gets.”

Steelmaking ingredient iron ore and Anglo’s platinum-group metals (PGM) unit were the main profit drivers. Average market prices for Anglo’s commodities increased by 62 per cent year on year in the first half. Strong cash generation from those businesses allowed Anglo to cut its net debt by $2bn from $5.6bn

Aided by China’s hunger for raw materials and big economies revving up as they recover from pandemic-induced crashes, the mining industry is enjoying some of the most favourable conditions it has ever faced. From copper to rhodium, commodity prices have soared over the past year, delivering huge windfalls for big producers.

Rio Tinto, the world’s biggest iron ore producer, said on Wednesday it would pay $9.1bn in half-year dividends as it cashed in on soaring prices for iron ore while Vale, a Brazilian rival, reported a 600 per cent rise in second-quarter net income to $7.6bn.

Based on production and commodity price forecasts, PwC expects the world’s top 40 miners to record after-tax profits of $118bn in 2021, up 68 per cent from the previous year.

Anglo American’s first-half results were ahead of its performance in 2020, when it generated pre-tax profits of $6bn and paid $1.25bn, or $1.00 per share, in dividends.

However, it was not all plain sailing. Costs rose 15 per cent, driven by rising energy and raw material prices, and the company revised upwards its guidance for the year, including a 24 per cent rise for PGMs.

“We think the market will take today’s result positively at first, especially with the special dividend and buyback, although we caution the cost guidance . . . is a negative,” said Tyler Broda, analyst at RBC Capital Markets.

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Shares in Anglo American rose 4.6 per cent to £32.71, among the FTSE 100’s biggest risers on Thursday. The stock has gained more than 25 per cent this year.

Anglo American has a portfolio spanning platinum, diamonds, iron ore, coking coal and copper mines in South America.

It is one of the few big mining houses promising production growth, with its Quellaveco copper mine in Peru due to come on stream in the middle of next year. It is also developing a fertiliser mine at a national park in the north of England.

Cutifani played down the threat of higher taxes and royalties in Chile and Peru, the world’s two biggest copper-producing countries.

Lawmakers in Chile want to fund the country’s Covid-19 recovery efforts by raising royalties, while Peru’s new president Pedro Castillo has vowed to squeeze more money from miners.

Cutifani said he had received a good hearing when he made the case for mining to Chile’s senate last week.

“Even some of the tougher players were listening,” he said. “It doesn’t mean we won’t see some adjustments to royalties but I think it [the conversation] is in a very sensible place.”

Turning to Peru, Cutifani said he had been engaging with the new administration.

“The message that’s pretty clear there is they don’t want to do anything that will stop the growth trajectory in the country. And Quellaveco represents 1 per cent of GDP.”

He added that when he joined Anglo in 2013, Peru’s then president Ollanta Humala “was supposed to be extremely leftwing, and we ended up having a very constructive relationship. And I am hopeful that’s where we will end up with Castillo as well.”

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