REG - Anglo American PLC - Anglo American Interim Results 2016 <Origin Href="QuoteRef">AAL.L</Origin> - Part 2

Anglo AmericanAnnouncement

28/07/2016 07:06

- Part 2: For the preceding part double click  ID:nRSb4546Fa 

          510             829    8%    
 Kumba Iron Ore              17.8              20.2         55          27         1,185    484               387             84     37%   
 Prior period                22.6              26.0         61          33         1,723    654               513             274    32%   
 Iron Ore Brazil             6.8               6.9          44          32         -        (9)               (10)            137    (1)%  
 Prior period                3.0               2.6          50          86         -        (10)              (11)            555    (1)%  
 Samancor(3)                 1.6               1.8          -           -          248      62                38              -      25%   
 Prior period                1.7               1.7          -           -          290      77                36              -      11%   
 Projects and corporate      -                 -            -           -          -        (25)              (25)            -      -     
 Prior period                -                 -            -           -          -        (28)              (28)            -      -     
                                                                                                                                             
 
 
(1)    Iron Ore Brazil production is Mt (wet basis). 
 
(2)    Prices for Kumba Iron Ore are the average realised export basket price
(FOB Saldanha). Prices for Iron Ore Brazil are average realised export basket
price (FOB Au) (wet basis). 
 
(3)  Production, sales and financials include ore and alloy. 
 
Financial and operating overview 
 
Kumba Iron Ore (Kumba) 
 
Underlying EBIT decreased by 25% to $387 million (H1 2015: $513 million),
mainly due to the fall in the iron ore benchmark price to an average of
$52/tonne (H1 2015: $60/tonne), and 22% lower sales volumes. Realised FOB
export prices averaged $55/tonne, 10% lower than in H1 2015. 
 
Total cash costs declined by 34%, driven principally by the 36% decrease in
planned waste mined following the Sishen pit redesign, lower input costs on
diesel and overhead cost savings, aided by the further weakening of the South
African rand against the US dollar. FOB cash costs decreased by 18% to
$27/tonne (H1 2015: $33/tonne). This was primarily due to the weaker rand and
savings in operating costs mainly as a result of the reduced mining profile at
Sishen mine following the restructuring to the smaller pit design, and
productivity gains in mining and processing operations. The restructuring is
substantially complete and is expected to contribute to annual savings from
2017. 
 
Sales decreased by 22% to 20.2 Mt (H1 2015: 26.0 Mt) following a 28% reduction
in production at Sishen as a result of the restructuring and reconfiguration
of the Sishen mine to a lower production profile in order to lower the cost
base. Kumba's logistics volumes were hampered by low stock levels through the
logistics chain. At the mines, finished product stock reduced to 1.1 Mt and
port stockpiles to 1.2 Mt, while total finished-product stock decreased to 2.3
Mt by end-June 2016 (30 June 2015: 3.8 Mt, excluding Thabazimbi). 
 
Iron Ore Brazil 
 
The underlying EBIT loss amounted to $10 million (H1 2015: $11 million loss).
Minas-Rio continues to capitalise its operating results as the asset is not
yet deemed to be in commercial production and is currently in the ramp-up
phase. Minas-Rio's capitalised operating loss was $17 million, $128 million
lower than prior year (H1 2015: $145 million loss). This reflected higher
sales volumes and lower unit costs as the operation ramps up, partly offset by
lower realised iron ore prices. 
 
Samancor 
 
Underlying EBIT increased by $2 million to $38 million with the benefits of
10% higher ore sales through stock drawdown and the restructuring of the South
African Manganese operations offsetting lower Australian alloy production due
to power shortages and a 15% realised price reduction. 
 
The South African Manganese operations restructuring was completed in Q1 2016.
This reduced the operating cost base and increased production flexibility in
reaction to the sharply declining price through 2015, which has continued into
2016. 
 
Markets 
 
Iron ore 
 
                                                                    H1 2016  H1 2015  
 Average market price (IODEX 62% Fe CFR China Ð $/tonne)            52       60       
 Average realised price (Kumba export Ð $/tonne) (FOB Saldanha)(1)  55       61       
 Average market price (MB 66% Fe Concentrate CFR Ð $/tonne)         58       74       
 Average realised price (Minas-Rio Ð $/tonne) (FOB wet basis)(2)    44       50       
 
 
(1)    Kumba's outperformance over the Platts 62% Fe CFR China index is
primarily representative of the superior iron (Fe) content and the relatively
high proportion (approximately 64%) of lumps in the overall product
portfolio. 
 
(2)    Iron Ore Brazil produces a higher-grade product than the Platts 62% Fe
indices, with pricing reflecting the increased Fe content and lower gangue.
Platts 62% is referred to for comparison purposes only. 
 
The IODEX 62% Fe CFR China spot price averaged $52/dmt in H1 2016, down 13%
year on year. Despite the H1 2016 market price being lower than in H1 2015,
seaborne iron ore prices have seen a strong recovery, rallying 29% through the
first six months to $55/dmt by the end of June 2016. The improvement in
downstream demand in China, driven by a record liquidity injection and
accelerated infrastructure spending, has temporarily held off the overcapacity
in the domestic steel sector, pushing steel prices higher. This positive
demand environment and improved mill margins have driven up Chinese crude
steel production, boosting demand for iron ore. In addition, the upturn in
demand has coincided with reduced production increases, although the recent
price rally has incentivised high-cost domestic and seaborne iron ore supply
back into the market. 
 
Manganese 
 
Following a 57% reduction in the index ore price during 2015, the price has
recovered by 33% in the first half of 2016 closing at $3.09/dmtu (44% Mn CIF
China). The price recovery was driven by demand from China following an
increase in infrastructure spending resulting in higher steel prices. 
 
Operating performance 
 
Kumba 
 
Production at Sishen declined by 28% to 11.5 Mt (H1 2015: 16.1 Mt), while
waste mined amounted to 64.9 Mt, a 40% reduction from H1 2015, in line with
the reconfiguration of the pit to a lower-cost shell. Run rates for H1 2016
were affected by the significant restructuring process which commenced in the
first quarter, which has now been substantially completed. Lower run rates
were exacerbated by higher levels of rainfall and safety stoppages. The
successful restructuring has increased mine flexibility, with run rates on key
operating parameters improving from May to June 2016. Sishen production is now
in line with full-year guided production of approximately 27 Mt. 
 
Kolomela mine produced 5.9 Mt in H1 2016 (H1 2015: 5.9 Mt) from 26% lower
ex-pit ore, benefiting from stockpiled material. Waste mining decreased to
20.2 Mt from 26.3 Mt in H1 2015. Operations were impacted by a safety stoppage
early in the period following a fatal incident in January 2016. 
 
Roll-out of the Anglo American Operating Model at Kolomela mine went live
during H1 2016, with work-management processes being implemented at both the
plant maintenance and plant operations. This work is currently in the
stabilisation phase, and the mine has already seen significant benefits, most
notably the reduction in plant throughput variation. At Sishen mine,
implementation of the Anglo American Operating Model continues to support the
operations post the restructuring. 
 
At Thabazimbi, mining activities ceased on 30 September 2015 and processing
activities ceased on 31 March 2016. Closure of the mine is proceeding
according to plan. 
 
Iron Ore Brazil 
 
Iron ore production from Minas-Rio increased by 128% to 6.8 Mt (wet basis)
during H1 2016, as the operation continues its ramp-up. The constrained pit
and ongoing licence processes have resulted in lower than anticipated quality
run-of-mine material. A provisional approval has been granted for the next
phase of licensing, which has allowed immediate access to the next tranche of
reserves. 
 
Samancor 
 
Production of manganese ore was in line with prior year at 1.6 Mt
(attributable basis). Production from the Australian operations was 3% higher
following the completion of the Premium Concentrate Ore project in May. This
offset an 8% reduction from the South African operations following a strategic
review, completed in Q1 2016 in reaction to the challenging market
conditions. 
 
Production of manganese alloys decreased by 51% to 61,800 tonnes (attributable
basis). This was due to power shortages in Tasmania resulting in production at
2 of the 4 furnaces being suspended. They are currently being brought back on
line, with a return to full production rates expected in July. South African
manganese alloy production decreased following the decision in May 2015 to
suspend three of the four furnaces. The South African operations will continue
to operate one of four furnaces until market conditions improve. 
 
Operational outlook 
 
Kumba 
 
Despite rallying, iron ore prices are not expected to recover materially in
the short or medium term. Kumba's ongoing priorities are to ensure a strong
focus on operational delivery, and to lower production costs through
productivity and efficiency gains. 
 
Kumba is accelerating study work on its low grade beneficiation projects at
Sishen to utilise spare plant capacity, which includes leveraging off
low-grade technology to upgrade the DMS plant to UHDMS (Ultra High Dense
Medium Separation), as well as the construction of a second modular plant at
Sishen. Sishen's production guidance remains unchanged at approximately 27 Mt
for 2016, while waste movement is expected to be 135-150 Mt. 
 
At Kolomela, waste removal has been optimised, and is expected to increase
annual production to 13 Mtpa from 2017, with an unchanged 12 Mt expected in
2016. The modular plant at Kolomela is expected to be commissioned in 2017,
providing an additional 0.7 Mtpa. 
 
Full year export sales volume guidance has been reduced to 38-39 Mt compared
with previous guidance of 40 Mt. Kumba continues to target a cash break-even
price of $32-$40/tonne CFR for 2016, and an FOB cash cost of $30/tonne. 
 
Iron Ore Brazil 
 
Due to pit constraints, full year 2016 production guidance for Iron Ore Brazil
has been revised to 15-17 Mt (previously 15-18 Mt) (wet basis). 
 
Iron Ore Brazil's FOB cash cost is expected to be $26-$28/tonne (wet basis).
Unit costs have improved since H1 2015 due to the continued ramp up, and to
the cost-efficiency and cost-reduction initiatives that are now in place. 
 
Legal 
 
In 2015, Sishen Iron Ore Company (Pty) Ltd (SIOC) received notice from the
Department of Mineral Resources (DMR) that the Director General of the DMR had
consented to the amendment of SIOC's mining right in respect of the Sishen
Mine, by the inclusion of the residual 21.4% undivided share of the mining
right for the Sishen mine, subject to certain conditions (which are described
by the DMR as 'proposals'). The conditions were not capable of being accepted
by SIOC as SIOC believes the Mineral and Petroleum Resources Development Act
(MPRDA) does not provide for the imposition of such conditions, they are not
practically implementable and they lack sufficient detail to provide the
company with legal certainty. 
 
SIOC submitted an internal appeal in terms of section 96 of the MPRDA to the
Minister of Mineral Resources, which set out the basis of its objections to
the proposals. SIOC has not yet received a response and will continue to
engage with the DMR in this regard. 
 
COAL 
 
 Key performance indicators  
                             Production volume  Salesvolume  Price   Unit cost  Revenue  Underlying EBITDA  Underlying EBIT  Capex  ROCE  
                             Mt(1)              Mt(2)        $/t(3)  $/t(4)     $m       $m                 $m               $m           
 Coal                        45.7               46.0         -       -          2,029    389                160              274    9%    
 Prior period                47.9               49.3         -       -          2,608    589                267              416    10%   
 Australia and               15.4               15.7         77      50         920      200                60               252    6%    
 Canada                                                                                                                                   
 Prior period                16.3               16.4         100     58         1,271    324                101              379    6%    
 South Africa                25.4               25.1         50      33         867      162                116              22     25%   
 Prior period                25.7               27.1         60      42         1,000    182                129              37     20%   
 Colombia                    4.9                5.2          47      30         242      51                 8                -      3%    
 Prior period                5.9                5.8          58      31         337      107                61               -      14%   
 Projects and                -                  -            -       -          -        (24)               (24)             -      -     
 corporate                                                                                                                                
 Prior period                -                  -            -       -          -        (24)               (24)             -      -     
 
 
(1)  Production volumes are saleable tonnes. 
 
(2)    South African sales volumes exclude non-equity traded sales volumes of
3.2 Mt (2015: 1.4 Mt).                    
 
(3)    Australia and Canada is the weighted average metallurgical coal sales
price achieved. South Africa is the weighted average export thermal coal price
achieved. 
 
(4)    FOB cost per saleable tonne, excluding royalties. Australia and Canada
excludes study costs and Callide. South Africa unit cost is for the export
operations. 
 
Financial and operating overview 
 
Australia and Canada 
 
Underlying EBIT decreased by $41 million to $60 million (H1 2015: $101
million). This reflected a $203 million negative price impact from a 23%
reduction in metallurgical coal realised price. The HCC benchmark price
reduction of 27% was partially offset, however, by a change in mix to produce
a higher proportion of benchmark quality coal. Unit costs also decreased by
14% (8% in A$) despite lower production following significant cost reduction
initiatives, particularly in the open cut operations. The half year
performance benefited too from a 6% weaker Australian dollar. Production was
5% lower than in H1 2015 for a number of reasons: there were two longwall
moves, as opposed to only one in H1 2015; the ramping down of operations at
Drayton, which will cease mining activities in 2016 following the New South
Wales Planning Assessment Commission decision not to support approval of the
Drayton South project; and a move to a five-day roster at Capcoal open cut to
take out the highest-cost capacity. 
 
Grosvenor produced its first longwall coal in May 2016, seven months ahead of
schedule. 
 
South Africa 
 
Underlying EBIT declined by 10% to $116 million (H1 2015: $129 million)
against a background of an
$85 million negative price impact from a 17% reduction in the export thermal
coal price and 11% lower export sales volumes as a result of planned
de-stocking in 2015. On-mine local currency unit costs were flat year on year
despite inflationary pressures, supported by a 7% increase in production in
the Export mines. This was driven by productivity improvements across all
operations, notably at Zibulo, where a new shift system and elements of the
Anglo American Operating Model have been implemented which led to an increase
in production of 14%. Together, these led to Export-mine US dollar unit costs
being 21% lower, in line with the depreciation of the South African rand
against the US dollar. 
 
Colombia 
 
Underlying EBIT decreased by 87% to $8 million (H1 2015: $61 million),
attributable mainly to weaker prices. This was compensated by a planned
reduction, in reaction to the falling price, in production to remove the
highest-cost capacity, and by the sustained benefits of significant cost
reduction programmes run in 2015. 
 
Markets 
 
Metallurgical coal 
 
                                      H1 2016  H1 2015  
 Average market price ($/tonne)(1)    83       113      
 Average realised price ($/tonne)(2)  77       100      
 
 
  
 
(1)  Represents the quarterly average benchmark for premium low-volume hard
coking coal. 
 
(2)    Average realised price of various grades of metallurgical coal,
including hard and semi-soft coking coal and PCI coal. 
 
Metallurgical coal prices started to see signs of recovery in H1 2016,
supported by a balanced supply side and stronger demand from India and China.
A sharp recovery in steel prices led to higher steel production and raw
material restocking by mills that had run inventory down to low levels. The
spot metallurgical coal price averaged $91/tonne (TSI Premium HCC FOB
Australia East Coast Port $/tonne) in Q2 2016, up 19% on Q1 2016, though
characterised by higher volatility. High-cost supply continues to exit the
market, in particular from the US, and as marginal projects globally are being
delayed or downgraded. 
 
Thermal coal 
 
                                                              H1 2016  H1 2015  
 Average market price ($/t, FOB Australia)(1)                 51       63       
 Average realised price Ð Export Australia ($/tonne, FOB)     47       61       
 Average realised price Ð Export South Africa ($/tonne, FOB)  50       60       
 Average realised price Ð Domestic South Africa ($/tonne)     16       18       
 Average realised price Ð Colombia ($/tonne, FOB)             47       58       
 
 
(1)  Thermal coal price and realised price will differ according to timing and
quality differences. 
 
Prices (Global Coal index Newcastle 6000kcal/kg FOB Australia) declined by 19%
year on year. Nonetheless, Chinese import demand was not as weak as
anticipated while Indian demand remained reasonably consistent. On the supply
side, Indonesian volumes were down and have been constrained by financing and
weather-related issues. 
 
Operating performance 
 
Australia and Canada 
 
In Australia, production decreased by 5% as a result of a longwall move at
both underground operations in 2016, whereas there was only a single move at
Grasstree in H1 2015. Total production was also affected by the decision of
the New South Wales Planning Assessment Commission not to recommend the
approval of the Drayton South project and the resulting ramp down to cessation
of mining activities at Drayton in 2016. 
 
Australian export metallurgical coal production was 2% lower, reflecting the
extra downtime incurred in the two longwall moves. This was partly compensated
by the early start-up of the Grosvenor project in May 2016 and a deliberate
change in mix at Dawson to produce higher-margin metallurgical coal. 
 
Production at the Australian open cut operations decreased by 5%, all of which
related to thermal coal; higher-margin metallurgical coal production was 2%
higher. The declines in thermal coal production were experienced mainly at
Drayton; at Dawson, where there was a change in mix to metallurgical coal; and
at Capcoal open cut, which moved to a five-day operation in Q4 2015 in order
to reduce costs and to prioritise higher-margin Grasstree production through
the shared plant. 
 
South Africa 
 
Total production from the Export operations was 7% higher at 11.7 Mt on the
back of productivity improvements following the implementation of elements of
the Anglo American Operating Model at all managed operations and a new shift
system at Goedehoop and Zibulo. Export production totalled 8.6 Mt, in line
with H1 2015, as additional production at Landau and Zibulo was switched to
the domestic market, where it received a higher margin. 
 
Export sales were 11% lower as a result of a planned drawdown of 1 Mt of
stocks in 2015. 
 
Colombia 
 
Anglo American's attributable output from its 33.3% shareholding in Cerrej-n
decreased by 17% to 4.9 Mt due to heavy rainfall in May and June 2016, and
ongoing planned reductions to remove the highest-cost capacity in reaction to
the falling price environment. 
 
Operational outlook 
 
Australia and Canada 
 
Metallurgical coal production in 2016 is expected to be 21-22 Mt, in line with
previous guidance. This is subject to the completion of any asset disposals. 
 
Export Thermal Coal 
 
In 2016, export production from South Africa and Colombia remains unchanged at
28-30 Mt. 
 
CORPORATE AND OTHER 
 
 Key performance indicators  
                             Revenue  UnderlyingEBITDA  UnderlyingEBIT  Capex  
                             $m       $m                $m              $m     
 Corporate and other         2        (40)              (48)            2      
 Prior period                901      57                11              9      
 
 
Financial and operating overview 
 
The underlying EBIT loss of $48 million for Corporate and other compares with
underlying EBIT of
$11 million in H1 2015. 
 
Underlying EBIT from Other Mining and Industrial fell from $62 million to $3
million following the disposal of Anglo American's interest in the Lafarge
Tarmac joint venture in July 2015. 
 
Exploration expenditure fell from $71 million to $53 million, reflecting
reductions in iron ore, coal, polymetallics and central support costs. The
decreases were mainly attributable to an overall reduction in drilling
activities. 
 
Corporate activities and unallocated costs made a net underlying EBIT
contribution of $2 million (H1 2015: $20 million). Corporate costs fell by $39
million, which included a $34 million benefit from foreign exchange. This was
partially offset by a $31 million reduction in the contribution from the
Group's captive insurance company due to lower premium income and adjustments
to provisions. 
 
For further information, please contact: 
 
 Media                                                                                                                                                          Investors                                                               
 UKJames Wyatt-Tilbyjames.wyatt-tilby@angloamerican.comTel: +44 (0)20 7968 8759                                                                                 UKPaul Gallowaypaul.galloway@angloamerican.comTel: +44 (0)20 7968 8718  
 Marcelo Esquivelmarcelo.esquivel@angloamerican.comTel: +44 (0)20 7968 8891                                                                                     Edward Kiteedward.kite@angloamerican.comTel: +44 (0)20 7968 2178        
 South AfricaPranill Ramchanderpranill.ramchander@angloamerican.comTel: +27 (0)11 638 2592 Ann Farndellann.farndell@angloamerican.comTel: +27 (0)11 638 2786    Sheena Jethwasheena.jethwa@angloamerican.comTel: +44 (0)20 7968 8680    
 
 
Notes to editors: 
 
Anglo American plc is a globally diversified mining business. Our portfolio of
world-class competitive mining operations and undeveloped resources provides
the raw materials to meet the growing consumer-driven demands of the world's
developed and maturing economies. Our people are at the heart of our business.
It is our people who use the latest technologies to find new resources, plan
and build our mines and who mine, process and move and market our products Ð
from diamonds (through De Beers) to platinum and other precious metals and
copper Ð to our customers around the world. 
 
As a responsible miner, we are the custodians of those precious resources. We
work together with our key partners and stakeholders to unlock the long-term
value that those resources represent for our shareholders, but also for the
communities and countries in which we operate Ð creating sustainable value and
making a real difference. 
 
www.angloamerican.com 
 
Webcast of presentation: 
 
A live webcast of the results presentation, starting at 9.00am UK time on 28
July 2016, can be accessed through the Anglo American website at
www.angloamerican.com 
 
Note: Throughout this results announcement, '$' denotes United States dollars
and 'cents' refers to United States cents; underlying EBIT is operating profit
presented before special items and remeasurements and includes the Group's
attributable share of associates' 'and joint ventures' underlying EBIT;
special items and remeasurements are defined in note 7 to the Condensed
financial statements. Underlying earnings, is calculated as set out in note 6
and note 10 to the Condensed financial statements. Underlying EBITDA is
underlying EBIT before depreciation and amortisation in subsidiaries and joint
operations and includes the Group's attributable share of underlying EBITDA of
associates and joint ventures before depreciation and amortisation. Tonnes are
metric tons, 'Mt' denotes million tonnes and 'kt' denotes thousand tonnes,
unless otherwise stated. 
 
Forward-looking statements: 
 
This announcement includes forward-looking statements. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding Anglo American's financial position,
business and acquisition strategy, plans and objectives of management for
future operations (including development plans and objectives relating to
Anglo American's products, production forecasts and reserve and resource
positions), are forward-looking statements. By their nature, such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of Anglo American, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding Anglo American's present and future business
strategies and the environment in which Anglo American will operate in the
future. Important factors that could cause Anglo American's actual results,
performance or achievements to differ materially from those in the
forward-looking statements include, among others, levels of actual production
during any period, levels of global demand and commodity market prices,
mineral resource exploration and development capabilities, recovery rates and
other operational capabilities, the availability of mining and processing
equipment, the ability to produce and transport products profitably, the
impact of foreign currency exchange rates on market prices and operating
costs, the availability of sufficient credit, the effects of inflation,
political uncertainty and economic conditions in relevant areas of the world,
the actions of competitors, activities by governmental authorities such as
changes in taxation or safety, health, environmental or other types of
regulation in the countries where Anglo American operates, conflicts over land
and resource ownership rights and such other risk factors identified in Anglo
American's most recent Annual Report. Forward-looking statements should,
therefore, be construed in light of such risk factors and undue reliance
should not be placed on forward-looking statements. These forward-looking
statements speak only as of the date of this announcement. Anglo American
expressly disclaims any obligation or undertaking (except as required by
applicable law, the City Code on Takeovers and Mergers (the 'Takeover Code'),
the UK Listing Rules, the Disclosure and Transparency Rules of the Financial
Conduct Authority, the Listings Requirements of the securities exchange of the
JSE Limited in South Africa, the SWX Swiss Exchange, the Botswana Stock
Exchange and the Namibian Stock Exchange and any other applicable regulations)
to release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in Anglo American's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based. 
 
Nothing in this announcement should be interpreted to mean that future
earnings per share of Anglo American will necessarily match or exceed its
historical published earnings per share. 
 
Certain statistical and other information about Anglo American included in
this announcement is sourced from publicly available third party sources. As
such, it presents the views of those third parties, though these may not
necessarily correspond to the views held by Anglo American. 
 
This information is provided by RNS
The company news service from the London Stock Exchange