REG - Anglo American PLC - Anglo American Preliminary Results 2017 <Origin Href="QuoteRef">AAL.L</Origin>

Anglo AmericanAnnouncement

22/02/2018 07:05

RNS Number : 5842F
Anglo American PLC
22 February 2018
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/5842F_-2018-2-21.pdf
year end FINANCIAL REPORT
for the year ended 31 December 2017
This page has been intentionally left blank.
22 February 2018
Anglo American Preliminary Results 2017
Free cash flow increased by 93% to $4.9 billion, halving net debt to $4.5 billion
Mark Cutifani, Chief Executive of Anglo American, said: "We have delivered a 93% increase in attributable free cash flow, almost halving net debt to $4.5 billion at the year end. These strong financial results benefit from transformed productivities and efficiencies across our business - including a 28% productivity improvement in 2017 alone - together with our portfolio upgrading and improved prices for many of our products. Our increased dividend for the second half equates to our targeted level of 40% of underlying earnings, totalling $1.02 per share for the year as a whole.
"We exceeded our cost and volume improvement target for the year, achieving $1.1 billion of underlying EBITDA benefit. Over the last five years, we have now delivered a $4.2 billion annual underlying EBITDA improvement. While we have already driven a material operational turnaround, we believe there is significant additional upside within the business both through further operating gains and from selected organic growth options. As part of how we run the business, we are therefore targeting an additional $3-4 billion annual runrate improvement by 2022 from production volumes, productivity improvements and cost reductions."
Highlights - year ended 31 December 2017
 Delivered attributable free cash flow* of $4.9 billion, a 93% increase
 Reduced net debt* to $4.5 billion, a 47% reduction, equal to 0.5x net debt / EBITDA
 Generated underlying EBITDA* of $8.8 billion, a 45% increase
 Profit attributable to equity shareholders doubled to $3.2 billion
 Achieved cost and volume improvements of $1.1 billion - in excess of target
 Targeting additional $3-4 billion annual underlying EBITDA run-rate improvement by 2022
 Increased dividend of 54 US cents per share for the second half, equal to 40% of second half underlying earnings*
- Total dividend payable for 2017 of $1.02 per share
Year ended
US$ million, unless otherwise stated
31 December 2017
31 December 2016
Change
Underlying EBITDA*
8,823
6,075
45%
Underlying earnings*
3,272
2,210
48%
Profit attributable to equity shareholders of the Company
3,166
1,594
99%
Underlying earnings per share* ($)
2.57
1.72
49%
Earnings per share ($)
2.48
1.24
100%
Dividend per share ($)
1.02
-
-
Group attributable ROCE*
19%
11%
-
Notes to the highlights and table are shown at the bottom of this section.
Words with this symbol * are defined as Alternative Performance Measures ('APMs').For more information on the APMs used by the Group, including definitions, please refer to page 57.
Safety and environmental performance
Anglo American's safety record in 2017 was the Group's single disappointment. Nine people lost their lives in fatal accidents in 2017, all in South Africa. Every leader in the business understands it is unacceptable to continue to work where there is a likely consequence of injury. As a result, significant further operational interventions to manage activity risks to end fatal incidents across all operations have taken place. Safety continues to be the Group's most critical area of focus, and while significant progress over recent years must be recognised  reducing safety incident rates by more than 40%  there is still a long way to go on the journey to zero harm.
Environmental incidents have been reduced by more than 90% since 2013, with continued focus on detailed operational planning across Anglo American's operating interests. Good progress continues to be made towards greater water and energy efficiency, as part of the overall business improvements.
Operational and financial review of Group results for the year ended
31 December 2017
SUMMARY
Anglo American's profit attributable to equity shareholders doubled to $3.2 billion (2016: $1.6 billion). Underlying earnings were $3.3 billion (2016: $2.2 billion), while operating profit was $5.5 billion (2016:$1.7billion).
Group underlying EBITDA increased by 45% to $8.8 billion (2016: $6.1 billion), benefiting from strong bulk commodity and copper prices. Cost and volume improvements across the Group benefited underlying EBITDA by $1.1 billion, exceeding the $1.0billion target for the year, driven by the ongoing ramp-up of Minas-Rio and strong sales volumes at DeBeers in the first quarter. There were also productivity improvements at Kumba, with increased fleet efficiency and higher plant yields, while Platinum made a solid recovery from the operational challenges experienced in 2016. The impact of the Group's ongoing cost-efficiency programme also played a significant role in exceeding our improvement target for the year.
The Group delivered a strong operational performance and increased copper equivalent production by 5%, despite challenges arising from adverse weather conditions in Australia, and an extended longwall move at Grosvenor (Metallurgical Coal).
Group copper equivalent unit costs increased by 7%, principally driven by stronger producer currencies. When the impact of foreign exchange movement is excluded, this increase was only 2%; below the Group's weighted average CPI for the year of 4%.
Attributable ROCE increased to 19% (2016: 11%), owing to the 73% improvement in attributable underlying EBIT to $5.1 billion.
Net debt (including related derivatives) reduced to $4.5 billion, $4.0 billion lower than at 31 December 2016. The reduction was driven by $4.9 billion of attributable free cash flow, reflecting the strong underlying EBITDA and working capital inflows, partly offset by the payment of dividends to Group shareholders.
Our materially improved balance sheet supported the resumption of the dividend at the half year. Based on a payout ratio dividend policy, 48 US cents per share was paid in September 2017. In line with this policy, the Board proposes a final dividend of 40% of second half underlying earnings equal to 54 US cents per share, bringing the total dividends paid and proposed for the year to $1.02 per share.
OPERATIONAL PERFORMANCE
We have continued to lift the performance of our assets through the implementation of our Operating Model. Across the Group, production increased by 5% on a copper equivalent basis, driven by improved performances at De Beers (+22%), Kumba Iron Ore (+8%) and Iron Ore Brazil (+4%), partly offset by lower production at the Coal operations (-4%)(1).
At De Beers, rough diamond production increased by 22% to 33.5 million carats (2016: 27.3 million carats), reflecting stronger trading conditions and the contribution from the Gahcho Ku mine in Canada, which entered commercial production in March 2017.
Kumba delivered a strong operational performance, increasing iron ore production by 8% to 45.0 Mt (2016:41.5 Mt), following improvements in mining productivity resulting from fleet efficiencies and higher plant yields. In Brazil, our Minas-Rio iron ore operation produced 16.8 Mt (wet basis), 4% higher (2016: 16.1 Mt), as the operation continued to ramp up its current operating capacity.
Copper production was in line with the prior year at 579,300 tonnes (2016: 577,100 tonnes), with solid performances at Los Bronces and Collahuasi partly offset by the impact of lost production at El Soldado, owing to the temporary suspension of mining operations in the first half.
Our Metallurgical Coal business in Australia produced 19.7 Mt of metallurgical coal, 6% lower than the prior year (2016: 20.9 Mt). This was driven by the divestment of Foxleigh mine (PCI producer), although was largely offset by a strong performance at the underground longwall operations, which produced 12.3 Mt, 14% higher than the prior year (2016: 10.8 Mt). Coal South Africa's export thermal coal production declined by 3% to 18.6Mt (2016: 19.1 Mt), mainly owing to operational challenges at Khwezela mine, and the planned transition to a new pit at Mafube. The Coal South Africa operations were also affected by self-enforced safety stoppages, following three fatalities in the year.
Group copper equivalent unit costs increased by 7%, driven mainly by stronger producer currencies. Excluding the impact of foreign exchange, the cost increase was 2%. Lower unit costs were realised at Platinum in rand terms, as a result of ongoing cost-saving initiatives, and at De Beers, where higher production and efficiency drives helped reduce unit costs. These efficiencies were offset, however, by higher costs across the Coal business which, in addition to experiencing Khwezela's operational challenges, encountered lower volumes at Dawson and the effects of the extended longwall move at Grosvenor (both Metallurgical Coal).
FINANCIAL PERFORMANCE
UNDERLYING EBITDA*
Group underlying EBITDA increased by 45% to $8.8 billion (2016: $6.1 billion), with a five percentage point increase in EBITDA margin from 26% to 31%, driven by strong pricing, particularly in bulk commodities and copper, continued productivity improvements and cost control across the portfolio.
Underlying EBITDA* by segment
$ million
Year ended
31 December 2017
Year ended
31 December 2016
De Beers
1,435
1,406
Copper
1,508
903
Platinum
866
532
Iron Ore and Manganese
2,357
1,536
Coal
2,868
1,646
Nickel
81
57
Corporate and other
(292)
(5)
Total
8,823
6,075
(1) Metallurgical and export thermal coal production.
Underlying EBITDA* reconciliation 2016 to 2017
The reconciliation of underlying EBITDA from $6.1 billion in 2016 to $8.8 billion in 2017 allows an understanding of the controllable factors (e.g. cost and volume) and those largely outside of management control (e.g. price, foreign exchange and inflation) that drive the Group's performance.
$ billion
2016 underlying EBITDA*
6.1
Price
2.4
Foreign exchange
(0.7)
Inflation
(0.4)
Volume
0.9
Cost
0.2
Net volume and cost improvements
1.1
Other
0.3
2017 underlying EBITDA*
8.8
Price
Average market prices for the Group's basket of commodities and products increased by 16%, contributing $2.4 billion of improvement to underlying EBITDA. The realised prices of metallurgical coal and copper increased by 57% and 29% respectively, while palladium (Platinum) showed a 44% improvement in realised price. The average realised price of diamonds decreased by 13%, mainly owing to a lower-value mix, with the average rough price index being 3% higher.
Foreign exchange
Stronger producer country currencies had the effect of reducing underlying EBITDA by $0.7 billion, mainly owing to a 9% strengthening of the South African rand and a 4% strengthening of the Chilean peso against the dollar.
Inflation
The Group's weighted average CPI for the year was 4%, in line with the prior year, principally influenced by South Africa, which had local CPI of 5%. The impact of inflationary cost increases reduced underlying EBITDA by $0.4 billion.
Volume
Following the cessation of capitalisation of earnings at Minas-Rio in January 2017, the operation's 16.8 Mt iron ore production materially benefited underlying EBITDA by $0.4 billion, which was also boosted by higher sales volumes at DeBeers, reflecting stronger demand for lower-value goods in the first quarter of 2017. Kumba's increased fleet efficiency and higher plant yields, as well as Platinum's solid recovery from the operational challenges experienced in 2016, also contributed to the Group volume improvement.
Cost
The Group's cost improvements benefited underlying EBITDA by $0.2 billion, overcoming the effects of aboveCPI inflationary pressure on the mining industry. This performance reflected the numerous cost-saving initiatives being implemented across the Group.
Other
Improved profitability at the Group's joint ventures and associates, Samancor, Cerrejn and Jellinbah, added $0.5 billion to underlying EBITDA. This was driven by higher prices on a stable production base. The action taken in 2016 to streamline our portfolio, which included the disposal of our Niobium and Phosphates business and tactical divestments at Metallurgical Coal, had a negative underlying EBITDA impact of $0.2 billion.
UNDERLYING EARNINGS*
Group underlying earnings increased by 48% to $3.3 billion (2016: $2.2 billion), in excess of the 45% increase to underlying EBITDA.
Reconciliation to underlying earnings*
$ million
Year ended
31 December 2017
Year ended
31 December 2016
Underlying EBITDA*
8,823
6,075
Depreciation and amortisation
(2,576)
(2,309)
Net finance costs and income tax expense
(2,223)
(1,118)
Non-controlling interests
(752)
(438)
Underlying earnings*
3,272
2,210
Depreciation and amortisation
Depreciation and amortisation increased to $2.6 billion (2016: $2.3 billion), reflecting cessation of capitalisation at Grosvenor in August 2016, and at Minas-Rio and Gahcho Ku during the course of 2017, in addition to the effect of stronger local currencies.
Net finance costs
Net finance costs, before special items and remeasurements, excluding associates and joint ventures, were $0.5 billion (2016: $0.2 billion). The increase was principally driven by the cessation of capitalisation of borrowing costs associated with Minas-Rio and Grosvenor, leading to a reduction in interest costs capitalised to $35 million (2016: $0.4 billion), as well as the impact of increases in LIBOR. This was partly offset by lower interest expense resulting from reduced average borrowings during the year.
Income tax expense
The underlying effective tax rate was 29.7% for the year ended 31 December 2017 (2016: 24.6%). The effective tax rate in 2017 benefited from the reassessment of deferred tax balances, primarily in Australia and Brazil, partly offset by the reassessment of withholding tax provisions, primarily in relation to Chile and South Africa, and the impact of the relative levels of profits arising in the Group's operating jurisdictions. In future periods, it is expected that the underlying effective tax rate will remain above the United Kingdom statutory taxrate.
The tax charge for the year, before special items and remeasurements, was $1.3 billion
(2016: $0.7billion).
Non-controlling interests
Non-controlling interests of $0.8 billion (2016: $0.4 billion) principally relate to minority shareholders in Kumba Iron Ore (Iron Ore and Manganese) and has increased as a result of higher profitability at Anglo American Sur (Copper).
SPECIAL ITEMS AND REMEASUREMENTS
Special items and remeasurements are a net charge of $0.1 billion (2016: net charge of $0.6 billion) and include net impairment reversals of $0.4 billion, relating to the impairment reversal at Sishen (Iron Ore and Manganese) of $0.5 billion, and ElSoldado (Copper) of $0.2 billion, partly offset by impairments of the Group's interest in BRPM (Platinum) and at Coal South Africa.
Full details of the special items and remeasurements recorded in the year are included in note 9 to the Condensed financial statements.
CASH FLOW
Cash flows from operations
Cash flows from operations increased by $2.5 billion to $8.4 billion (2016: $5.8 billion), reflecting strong underlying EBITDA from subsidiaries and joint operations and working capital inflows.
Cash inflows on operating working capital were $0.9 billion (2016: inflows of $0.4 billion), driven mainly by an increase in operating payables across the Group and, in particular, by a $0.2 billion prepayment from a customer in our Platinum business.
Attributable free cash flow*
Attributable free cash flow increased to a $4.9 billion inflow (2016: $2.6 billion inflow). The improvement resulted from a $2.5 billion increase in cash flows from operations and a $0.2 billion reduction in capital expenditure, offset by a $0.6 billion increase in dividends paid to non-controlling interests.
NET DEBT*
$ million
2017
2016
Opening net debt*
(8,487)
(12,901)
Underlying EBITDA* from subsidiaries and joint operations
7,632
5,469
Working capital movements
879
391
Other cash flows from operations
(136)
(22)
Cash flows from operations
8,375
5,838
Capital expenditure*
(2,150)
(2,387)
Cash tax paid(1)
(843)
(465)
Dividends from associates, joint ventures and financial asset investments
517
172
Net interest(2)
(355)
(581)
Dividends paid to non-controlling interests
(601)
(15)
Attributable free cash flow*
4,943
2,562
Dividends to Anglo American plc shareholders
(618)
-
Other net debt movements
(339)
1,852
Total movement in net debt*(3)
3,986
4,414
Closing net debt*
(4,501)
(8,487)
(1) 2016 excludes tax payments of $146 million relating to disposals, which are shown as part of net disposal proceeds.
(2) Includes cash inflows of $22 million (2016: $89 million), relating to interest payments on derivatives hedging net debt, which are included in cash flows from derivatives related to financing activities.
(3) Net debt excludes the own credit risk fair value adjustment on derivatives of $9 million (2016: $73 million).
Net debt (including related derivatives) of $4.5 billion was $4.0 billion lower than at 31 December 2016, representing gearing of 13% (2016: 26%). Net debt at 31 December 2017 comprised cash and cash equivalents of $7.8 billion (2016: $6.0 billion) and gross debt, including related derivatives, of $12.3 billion (2016: $14.5 billion). The reduction in net debt was driven by $4.9billion of attributable free cash flow, partly offset by the payment of dividends to Group shareholders in September, as well as other net debt movements.
BALANCE SHEET
Net assets of the Group increased by $4.6 billion to $28.9 billion (2016: $24.3 billion). This reflected the reduction in net debt and net foreign exchange gains relating principally to operations with South African rand and Australian dollar functional currencies. Capital expenditure of $2.2 billion was more than offset by depreciation and amortisation of $2.6 billion.
ATTRIBUTABLE ROCE*
Attributable ROCE increased to 19% (2016: 11%), primarily owing to the 73% improvement in attributable underlying EBIT to $5.1 billion (2016: $3.0 billion), driven by higher prices, higher sales volumes at DeBeers, the ongoing ramp-up of production at Minas-Rio in Brazil and the continued delivery of cost efficiency programmes across the Group. This improvement was mitigated by inflation and stronger producer country currencies. Average attributable capital employed was constant at $27.4 billion (2016: $27.4billion), as capital expenditure and the strengthening of producer currencies were offset by the impact of disposals during 2016 on average capital employed, and a $0.9 billion reduction in working capital during the year.
LIQUIDITY AND FUNDING
In March 2017, the Group completed the repurchase of $1.3 billion (including the cost of unwinding associated derivatives) of euro- and sterling-denominated bonds with maturities from April 2018 to June 2019. This was followed in April 2017 with a $1.0 billion dual tranche 5- and 10-year issuance in the US bond markets.
In September 2017, the Group completed the repurchase of $1.9 billion (including the cost of unwinding associated derivatives) of US- and euro-denominated bonds with maturities from September 2018 to November 2020. Concurrently, the Group issued corporate bonds with a US dollar equivalent value of $2.0billion, including a $1.3 billion dual tranche 7- and 10-year issuance in the US bond markets and a 0.6billion 8-year bond in the European bond markets.
On 7 February 2018, Anglo American gave notice that it will redeem in full its outstanding $750 million, 9.375% US bond, due April 2019, on 9 March 2018.
These transactions, as well as $1.9 billion of bond maturities during 2017, have reduced short term refinancing requirements, increased the weighted average maturity of outstanding debt by approximately one year and reduced gross debt.
GROUP CAPITAL EXPENDITURE*
Capital expenditure decreased to $2.2 billion (2016: $2.4 billion), due to rigorous capital discipline applied to all project investments, coupled with the commissioning of the Minas-Rio, Gahcho Ku and Grosvenor projects - all previously projects in execution, for which capitalisation has ceased.
$ million
Year ended
31 December 2017
Year ended
31 December 2016
Expansionary
384
967
Stay-in-business
1,310
1,042
Development and stripping
586
551
Proceeds from disposal of property, plant and equipment
(52)
(23)
Total
2,228
2,537
Capitalised operating cash flows
(78)
(150)
Total capital expenditure
2,150
2,387
Stay-in-business capital expenditure increased to $1.3 billion (2016: $1.0 billion), primarily owing to the inclusion of expenditure at these newly commissioned assets and stronger producer currencies.
Capital expenditure on our expansionary projects during the year was focused on the ongoing development of DeBeers' Venetia underground mine in South Africa. The project is now well under way, with the underground operation expected to be the mine's principal source of ore during 2023, extending the life of mine to 2046.
In 2018, we expect capital expenditure to increase to between $2.6 and $2.8 billion.
DIVIDENDS
Our materially improved balance sheet supported the decision to resume dividend payments at the half year, six months earlier than expected, and a dividend based on 40% of first half underlying earnings was paid in September 2017.
The payout ratio based dividend policy provides shareholders with exposure to improvements in product prices, while retaining cash flow flexibility during periods of weaker pricing. In line with the policy, the Board proposes a final dividend of 40% of second half underlying earnings, equal to 54 US cents per share, bringing the total dividends paid and proposed in the year to $1.02 per share.
PORTFOLIO UPGRADE
Disposals announced and completed
During 2017, we completed the disposal of our 83.3% interest in the Dartbrook coal mine (Metallurgical Coal) to Australian Pacific Coal Limited, our 42.5% interest in the Pandora mine (Platinum) and certain Amandelbult resources (Platinum). In February 2018, we completed the disposal of Platinum's 85% interest in Union Mine and 50.1% interest in Masa Chrome Company Proprietary Limited in South Africa to a subsidiary of Siyanda Resources Proprietary Limited.
Anglo American entered into several sale agreements, the completion of which are subject to, among other things, regulatory approvals, including our 88.2% interest in the Drayton thermal coal mine and Drayton South project in Australia to Malabar Coal Limited. The sale of the Eskom-tied domestic thermal coal operations in South Africa to a wholly owned subsidiary of Seriti Resources Holdings Proprietary Limited is expected to complete on 1 March 2018. In addition, in January 2018, we agreed the sale of the New Largo thermal coal project and Old New Largo closed colliery in South Africa to New Largo Coal Proprietary Limited, which is owned by Seriti Resources Holdings Proprietary Limited, Coalzar Proprietary Limited and the Industrial Development Corporation.
Other portfolio changes
Bokoni mine (Platinum) in South Africa was placed onto care and maintenance by Platinum's joint venture partner, Atlatsa Resources, during the year.
Damtshaa diamond mine in Botswana, which was placed onto care and maintenance from 1 January 2016, successfully achieved a restart in the fourth quarter of 2017, in preparation for 2018 production.
Having exceeded its original diamond production forecast over its expected lifespan, DeBeers' Victor mine in Canada is due to close in 2019, when the open pit will have been depleted.
THE BOARD
With effect from the conclusion of the Annual General Meeting held on 24 April 2017, Nolitha Fakude joined the Board as a non-executive director and Stephen Pearce succeeded Ren Mdori as finance director. MrMdori left the Board with effect from that date. Ian Ashby was appointed to the Board as a non-executive director on 25 July 2017.
MrStuart Chambers joined the Board as a non-executive director and chairman designate on 1 September 2017. SirJohn Parker retired from the Board on 31 October 2017 and was succeeded as chairman by MrChambers with effect from 1 November 2017.
PRINCIPAL RISKS AND UNCERTAINTIES
Anglo American plc is exposed to a variety of risks and uncertainties which may have a financial, operational or reputational impact on the Group, and which may also have an impact on the achievement of social, economic and environmental objectives.
The principal risks and uncertainties facing the Group at the 2017 year-end are set out in detail in the strategic report section of the Annual Report 2017. The principal risks relate to the following:
 Catastrophic risks
 Political and regulatory
 Competitive position
 Investor activism
 Future demand for diamonds
 Future demand for PGMs
 Cyber security
 Safety
 Commodity prices
 Corruption
 Operational performance including delivery of cash targets
The Group is exposed to changes in the economic environment, as with any other business. Details of any key risks and uncertainties specific to the period are covered in the Operations review section.
The Annual Report 2017 will be available on the Group's website from 5 March 2018.
www.angloamerican.com
Operations review for the year ended 31 December 2017
DEBEERS
Financial and operational metrics(1)
Production
volume
Sales
volume
Price
Unit
cost*
Revenue*
Underlying
EBITDA*
Underlying EBITDA
margin
Underlying
EBIT*
Capex*
ROCE*
'000
carats
'000
carats(2)
$/ct(3)
$/ct(4)
$m(5)
$m
$m
$m(6)
DeBeers
33,454
32,455
162
63
5,841
1,435
25%
873
273
9%
Prior year
27,339
29,965
187
67
6,068
1,406
23%
1,019
526
11%
Botswana (Debswana)
22,684
-
159
28
-
484
-
447
86
-
Prior year
20,501
-
152
26
-
571
-
543
90
-
Namibia
(Namdeb Holdings)
1,805
-
539
257
-
176
-
146
33
-
Prior year
1,573
-
528
245
-
184
-
163
65
-
South Africa (DBCM)
5,208
-
129
62
-
267
-
119
114
-
Prior year
4,234
-
121
53
-
268
-
172
156
-
Canada(7)
3,757
-
235
57
-
205
-
58
(5)
-
Prior year
1,031
-
271
212
-
79
-
13
184
-
Trading
-
-
-
-
-
449
-
443
1
-
Prior year
-
-
-
-
-
378
-
371
3
-
Other(8)
-
-
-
-
-
(146)
-
(340)
44
-
Prior year
-
-
-
-
-
(74)
-
(243)
28
-
(1) Prepared on a consolidated accounting basis, except for production, which is stated on a 100% basis except for the Gahcho Ku joint venture in Canada, which is on an attributable 51% basis.
(2) Consolidated sales volumes (2017: 33.1million carats; 2016:30.0 million carats) exclude pre-commercial production sales volumes from Gahcho Ku. Total sales volumes (100%), which are comparable to production, were 35.1 million carats (2016:32.0millioncarats). Total sales volumes (100%) include pre-commercial production sales volumes from Gahcho Ku and DeBeers' JV partners' 50% proportionate share of sales to entities outside DeBeers from the Diamond Trading Company Botswana and the Namibia Diamond Trading Company.
(3) Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The DeBeers realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to DeBeers unit costs, which relate to equity production only.
(4) Unit cost is based on consolidated production and operating costs, excluding depreciation and operating special items, divided by carats recovered.
(5) Includes rough diamond sales of $5.2 billion (2016: $5.6 billion).
(6) Includes pre-commercial production capitalised operating cash inflows from Gahcho Ku.
(7) For Canada, price excludes Gahcho Ku contribution from sales related to pre-commercial production, which were capitalised in the first half of 2017. Unit costs include Gahcho Ku contribution following achievement of commercial production on 2 March 2017.
(8) Other includes ElementSix, downstream, acquisition accounting adjustments, projects and corporate.
Financial and operational overview
Underlying EBITDA increased by 2% to $1,435 million (2016: $1,406 million) despite lower revenue following the one-off industry midstream restocking in 2016. This performance was driven by improved margins, which benefited from lower unit costs (supported by higher production and efficiency drives across the business), a strong contribution from Canada (driven by Gahcho Ku's ramp-up and the closure of Snap Lake), and ElementSix (which benefited from a recovery in oil and gas markets). This was partly offset by unfavourable exchange rates, and an increasing proportion of waste mining costs being expensed rather than capitalised, owing to an improved strip ratio at Venetia in South Africa.
Total revenue declined by 4% to $5.8 billion (2016: $6.1 billion) - as expected, given the benefit of strong midstream restocking in the first half of 2016. The average realised rough diamond price decreased by 13% to $162/carat (2016: $187/carat) mainly owing to a lower value mix; this was partly offset by an 8% increase in consolidated sales volumes to 32.5 million carats (2016: 30.0 million carats). This reflected stronger demand for lower-value goods in Sight 1 of 2017, following a recovery from the initial impact of India's demonetisation programme in late 2016, as well as the ramp-up of production from lower value per carat but high margin operations, including Orapa and Gahcho Ku. The lower-value mix was compensated in part by a higher average rough price index, which was 3% above that of 2016.
Capital expenditure reduced by 48% to $273 million (2016: $526 million), mainly owing to the completion of major projects, including Gahcho Ku; Debmarine Namibia's new exploration and sampling vessel, the SS Nujoma; and planned lower waste capitalisation at Venetia. The SS Nujoma, which was delivered three months ahead of schedule and under budget, was officially inaugurated in June 2017 and is fully operational.
Markets
Early signs are that global consumer demand for diamond jewellery registered positive growth in 2017 in USdollar terms, following a marginal increase in 2016. Sustained diamond jewellery demand growth in the US was once again the main contributor to this positive outcome. Demand for diamond jewellery by Chinese consumers grew marginally, in local currency and dollar terms. In contrast, consumer demand for diamonds softened in India and the Gulf states, both in local currency and dollar terms, while Japan's consumer demand growth was flat in local currency and lower in dollars.
Diamond producers' primary stocks are estimated to have reduced considerably during the first half of 2017, as sentiment in the midstream improved and rough and polished inventories normalised for businesses in this segment of the value chain. However, as a result of US retailers tightly managing their inventories and the earlier timing of Diwali in India, there was a slight seasonal build-up of polished inventory in the midstream going into the fourth quarter. Overall, early indications are that additional consumer marketing undertaken during the main selling season had a positive effect on polished demand in the US, China and India in the final quarter of the year, leading to a positive impact on overall polished inventories.
Operating performance
Mining and manufacturing
Rough diamond production increased by 22% to 33.5 million carats (2016: 27.3 million carats), reflecting stronger underlying trading conditions as well as the contribution from the ramp-up of Gahcho Ku.
Botswana (Debswana) increased production by 11% to 22.7 million carats (2016: 20.5 million carats). Production at Orapa was 28% higher, mainly driven by planned increases in plant performance and the rampup of Plant 1, which was previously on partial care and maintenance in response to trading conditions in late 2015. In June 2017, Jwaneng processed its first ore from Cut-8, which is expected to become the mine's main source of ore during 2018.
In Namibia (Namdeb Holdings), production increased by 15% to 1.8 million carats (2016: 1.6 million carats), primarily owing to higher production from Debmarine Namibia's Mafuta vessel, driven by higher mining rates following an extended scheduled in-port during 2016. At Namdeb's land operations, production rose by 6%, despite challenging conditions, including grade variability owing to the nature of alluvial deposits, structural cost pressures, and some operations nearing the end of their lives.
In South Africa (DBCM), production increased by 23% to 5.2 million carats (2016: 4.2 million carats), primarily owing to Venetia, driven by higher grades as well as improved operational performance benefiting tonnes treated. Construction continues on the Venetia Underground mine, which is expected to become the mine's principal source of production during 2023.
In Canada, production increased to 3.8 million carats (2016: 1.0 million carats) owing to the ramp-up of Gahcho Ku, which entered commercial production in March 2017. During the year, Gahcho Ku benefited from higher than expected grades, partly offset by a lower average value of production. Owing to the differences in lobe characteristics across different kimberlite pipes, the average grade and realised price will continue to vary and will be dependent on the area mined. Production at Victor increased by 21% to 0.7 million carats as a result of higher grades. Victor, which has been operating successfully since 2008, is due to close in 2019, when the open pit is expected to have been depleted. The closure of Snap Lake, which is currently on care and maintenance, is progressing, with flooding having been completed, thereby minimising holding costs while preserving the long term viability of the orebody.
Other revenue includes ElementSix, which grew strongly, driven primarily by a recovery in the oil and gas business but also supported by the automotive and consumer electronics segments.
Brands
In March 2017, DeBeers acquired its joint venture partner's 50% shareholding in DeBeers Jewellers (DBJ). With full ownership of the business (and the DeBeers corporate brand), the process of integrating the DBJ brand and network of 30 stores in 16 key consumer markets around the world is well under way.
Forevermark continued to expand its retailer network and is now available in more than 2,200 outlets in 25 markets, an increase of 10% since the end of 2016. By May 2017, Forevermark had inscribed its
two-millionth diamond, the second million having taken only half the time it took to inscribe the first million. For the peak holiday sales period, the brand launched "Forevermark Tribute Collection", a significant marketing investment across multiple channels in the key US market. The Tribute Collection, and its supporting campaign, symbolises and celebrates the many facets of the wearer, and reflects the growing trend for women to self-purchase.
In February 2017, DeBeers unveiled its next-generation automated mele screening instrument (AMS2), which is significantly less expensive, screens 10 times faster, can handle stones three times smaller, and has lower referral rates than its predecessor. In addition, an industry-first synthetic-screening device for stones in set jewellery (SYNTHdetect) was launched in June 2017, along with the roll-out by the International Institute of Diamond Grading & Research of a synthetics-detection training course.
During 2017, DeBeers invested more than $140 million in marketing (19% more than in 2016) through a combination of proprietary and partnership activity centred on the US, China and India. DeBeers also substantially increased its investment in the Diamond Producers Association, a producer-wide body that works to enhance consumer demand by promoting the appeal, integrity and reputation of diamonds.
DeBeers also began the development of a new digital platform for the diamond industry, backed by highly secure blockchain technology, which will provide a single immutable record for every diamond that is registered. Currently in the pilot phase, this initiative is being designed to underpin confidence in diamonds and the diamond industry for all stakeholders, while streamlining existing manual processes and creating new efficiencies in the value chain.
Outlook
Improving global macro-economic conditions remain supportive of consumer demand growth for polished diamonds in 2018. The degree of global economic growth, however, will be dependent upon a number of factors, including the extent of the positive impact on growth in consumer spending from US tax cuts, the strength of the dollar on consumer demand in non-dollar-denominated countries, and how successfully China manages its adjustment to a more domestic consumer-driven economy.
For 2018, forecast diamond production (on a 100% basis except Gahcho Ku on an attributable 51% basis) is expected to be in the range of 34-36 million carats, subject to trading conditions.
COPPER
Financial and operational metrics
Production
volume
Sales
volume
Price
C1
unit
cost*
Revenue*
Underlying
EBITDA*
Underlying EBITDA margin(3)
Underlying
EBIT*
Capex*
ROCE*
kt
kt(1)
c/lb
c/lb(2)
$m
$m
$m
$m
Copper
579
580
290
147
4,233
1,508
41%
923
665
16%
Prior year
577
578
225
137
3,066
903
31%
261
563
6%
Los Bronces
308
307
-
169
1,839
737
40%
401
245
-
Prior year
307
308
-
156
1,386
326
24%
(49)
241
-
Collahuasi(4)
231
232
-
113
1,314
806
61%
594
243
-
Prior year
223
223
-
111
1,068
569
53%
342
144
-
Other operations
40
41
-
-
1,080
76
16%
39
177
-
Prior year
47
47
-
-
612
83
18%
43
178
-
Projects and corporate
-
-
-
-
-
(111)
-
(111)
-
-
Prior year
-
-
-
-
-
(75)
-
(75)
-
-
(1) Excludes 111 kt third-party sales.
(2) C1 unit cost includes by-product credits.
(3) Excludes impact of third-party sales.
(4) 44% share of Collahuasi production, sales and financials.
Financial and operating overview
Underlying EBITDA increased by 67% to $1,508 million (2016: $903 million), primarily as a result of a 27% increase in the average LME copper price, as well as a continued focus on cost-reduction initiatives. Production increased to 579,300 tonnes, with solid performances at Los Bronces and Collahuasi partly offset by the impact of lost production at El Soldado, owing to the temporary suspension of mining operations in the first half. At 31 December 2017, 108,000 tonnes of copper were provisionally priced at 328 c/lb.
Markets
2017
2016
Average market price (c/lb)
280
221
Average realised price (c/lb)
290
225
The differences between market price and realised price are largely a function of the timing of sales across the year and provisional pricing adjustments.
The increase in price in 2017 reflects improved demand and a slowdown in mine supply, stimulating more favourable investor sentiment.
Operating performance
At Los Bronces, production in 2017 increased marginally to 308,300 tonnes (2016: 307,200 tonnes). Higher grades (2017: 0.71% vs 2016: 0.67%) were partly offset by lower throughput, following a failure in the ball mill stator at the processing plant during the third and fourth quarters. C1 unit costs increased by 8% to 169c/lb (2016: 156 c/lb), reflecting the effect of the stronger Chilean peso and cost inflation.
At Collahuasi, Anglo American's attributable share of copper production was 230,500 tonnes, an increase of 3% (2016: 222,900 tonnes). It was another year of record copper in concentrate production for the operation, building on 2016's record output. Production benefited from higher grades, as well as strong sustained plant performance following the completion of a two-month planned maintenance at the processing plant in the second quarter. C1 unit costs were 113 c/lb (2016: 111c/lb), with the increase in production and continued cost-saving initiatives partly offsetting the effects of the stronger Chilean peso, cost inflation and lower byproduct credits.
Production at El Soldado decreased by 14% to 40,500 tonnes (2016: 47,000 tonnes), owing largely to the temporary suspension of mine operations from 18 February to 28 April 2017, which resulted in 6,000tonnes of lost production. C1 unit costs increased by 27% to 233 c/lb (2016: 184 c/lb) as a result of the lower output, the stronger Chilean peso and cost inflation.
Operational outlook
Production in 2018 is expected to increase with the planned mining of higher ore grades at Collahuasi and LosBronces. Production guidance for 2018 has been tightened to 630,000-660,000 tonnes.
PLATINUM
Financial and operational metrics
Production
volume platinum
Production
volume palladium
Sales
volume platinum
Basket price
Unit
cost*
Revenue*
Underlying
EBITDA*
Underlying
EBITDA margin
Underlying
EBIT*
Capex*
ROCE*
koz(1)
koz(1)
 koz
$/Pt oz(2)
$/Pt oz(3)
$m
$m
$m
$m
Platinum
2,397
1,557
2,505
1,966
1,443
5,078
866
17%
512
355
10%
Prior year
2,382
1,539
2,416
1,753
1,330
4,394
532
12%
185
314
4%
Mogalakwena
464
509
467
2,590
1,179
1,211
578
48%
448
151
-
Prior year
412
452
415
2,345
1,257
968
393
41%
269
157
-
Amandelbult(4)
438
202
459
1,868
1,596
858
88
10%
34
34
-
Prior year
459
207
466
1,567
1,254
727
97
13%
41
25
-
Purchase of concentrate(5)
1,021
549
1,082
-
-
1,884
173
9%
145
-
-
Prior year
652
388
656
-
-
1,033
96
9%
77
-
-
Other operations
474
297
497
-
-
1,125
83
7%
(59)
170
-
Prior year
859
492
879
-
-
1,666
(14)
(1)%
(162)
129
-
Projects and corporate
-
-
-
-
-
-
(56)
-
(56)
-
-
Prior year
-
-
-
-
-
-
(40)
-
(40)
3
-
(1) Production disclosure reflects own-mined production and purchase of metal in concentrate.
(2) Average US$ basket price.
(3) Total cash operating costs - includes on-mine, smelting and refining costs only.
(4) Excludes 8 koz (2016: 8 koz) of platinum production now included in purchase of concentrate.
(5) Purchase of concentrate from joint ventures, associates and third parties for processing into refined metal.
Financial and operating overview
Underlying EBITDA increased by 63% to $866 million (2016: $532 million), largely as a result of higher sales volumes (platinum, palladium and some minor metals) and stronger prices for palladium and rhodium. Lower local currency costs, driven by ongoing cost improvement initiatives, were offset by the stronger South African rand, resulting in an 8% increase in US dollar costs to $1,443/ounce (2016: $1,330/ounce).
Markets
2017
2016
Average platinum market price ($/oz)
950
989
Average palladium market price ($/oz)
871
615
Average rhodium market price ($/oz)
1,097
681
Average gold market price ($/oz)
1,258
1,248
US$ realised basket price ($/Pt oz) 
1,966
1,753
Rand realised basket price (R/Pt oz)
26,213
25,649
An increase in palladium and rhodium prices, driven by strong demand, supported a stronger basket price in both dollars and rand, despite a lower average platinum price during the year.
Operating performance
Total platinum production (metal in concentrate), including both own-mined production and purchase of concentrate, increased by 1% to 2,397,400 ounces (2016: 2,381,900 ounces). Total palladium production (metal in concentrate), including both own-mined production and purchase of concentrate, was also 1% higher at 1,557,300 ounces (2016: 1,538,700 ounces).
Production from own-managed mines
Platinum produced from own-managed mines, excluding projects, increased by 3% to 1,130,900 ounces (2016: 1,096,200 ounces), while palladium production grew by 7% to 847,200 ounces (2016: 789,600 ounces).
Platinum's flagship Mogalakwena mine produced a record 463,800 ounces of platinum (2016: 411,900 ounces) and 508,900 ounces of palladium (2016: 452,000 ounces), a 13% increase for both. The increase resulted from improved concentrator throughput and recoveries following implementation of the North concentrator plant optimisation project, as well as higher average grades.
Amandelbult complex yielded 438,000 ounces of platinum (2016: 458,600 ounces) and 202,500 ounces of palladium (2016: 207,300 ounces), representing decreases of 4% and 2% respectively. This was caused primarily by excessive rainfall in the first quarter, which constrained production from the surface operations, lower immediately available Ore Reserves, and increased development as the mine makes its transition from the Tumela Upper to the Dishaba Lower mining areas. Production was further affected by three fatal incidents and their subsequent associated safety stoppages.
Unki mine in Zimbabwe maintained its platinum production level for the year at 74,600 ounces
(2016: 74,500 ounces), while raising its palladium output by 5% to 64,400 ounces (2016: 61,400 ounces). This performance was largely driven by more efficient mining, which reduced waste mining, resulting in highergrade ore being delivered to the concentrator. Owing to planned maintenance at the concentrator in the fourth quarter, Unki had an ore stockpile at the end of 2017, which will be processed in 2018.
Union mine produced 154,500 ounces of platinum (2016: 151,200 ounces) and 71,400 ounces of palladium (2016: 68,900 ounces), increases of 2% and 4% respectively, as a result of improved stoping efficiencies. As announced by Platinum on 26 January 2018, Union mine has now been sold to Siyanda Resources Proprietary Limited, effective 1 February 2018. With effect from this date, Union mine's output is being recognised as thirdparty purchase of concentrate.
Joint venture production
Platinum and palladium production from the Mototolo, Modikwa and Kroondal joint ventures, inclusive of both own-mined share and purchase of concentrate production, decreased by 3% and 1% respectively, to 490,600ounces of platinum (2016: 505,600 ounces) and 323,100 ounces of palladium (2016:327,800ounces). The decrease was largely due to the stoppage of the Mototolo concentrator for remedial work to stabilise the tailings storage facility. This resulted in a 27% reduction in platinum output to 85,300 ounces (2016: 116,700 ounces) and a 26% reduction in palladium output to 52,500 ounces (2016:70,700 ounces).
Modikwa platinum production rose by 10% to 126,700 ounces (2016: 114,800 ounces), and palladium production by 9% to 122,700 ounces (2016: 112,200 ounces) on the back of increased underground mining efficiencies and improved concentrator recoveries. Kroondal's production was slightly higher owing to increased underground productivity, with platinum and palladium production both 2% higher at 278,600 ounces (2016: 274,100 ounces) and 147,900 ounces (2016: 144,900 ounces) respectively.
Purchase of concentrate from associates
Total platinum production from associates decreased by 5% to 265,500 ounces (2016: 279,300 ounces), while palladium production was 10% lower at 127,900 ounces (2016: 141,700 ounces).
BRPM produced 211,900 ounces of platinum (2016: 195,900 ounces) and 87,600 ounces of palladium (2016:81,300 ounces), both increasing by 8%, as the Styldrift project continued its ramp-up.
On 31 October 2017, Bokoni mine was placed onto care and maintenance by Platinum's joint venture partner, Atlatsa Resources, resulting in a 36% reduction in platinum output to 53,600 ounces (2016: 83,400 ounces) and a 33% decrease in palladium output to 40,300 ounces (2016: 60,400 ounces). No further loss-making production will be produced from Bokoni while the mine and concentrator remain on care and maintenance.
Purchase of concentrate from third parties
Increased third-party purchases of concentrate led to a yearly total of 510,400 ounces of platinum
(2016: 119,800 ounces) and 259,200 ounces of palladium (2016: 82,600 ounces). Production from Rustenburg has been purchased since 1 November 2016, when the operation was sold to Sibanye. The Maseve operation, owned by Platinum Group Metals, was placed onto care and maintenance in the third quarter. No further thirdparty purchase of concentrate is currently expected from the Maseve mine.
Refined production
Refined platinum production increased by 8% to 2,511,900 ounces (2016: 2,334,700 ounces), and refined palladium production by 14% to 1,668,500 ounces (2016: 1,464,200 ounces). Refined production in 2016 was materially affected by a Section 54 safety stoppage at the Precious Metals Refinery, as well as by a run-out at the Waterval smelter in September of that year; the subsequent recovery from these developments was largely responsible for the increase in output in 2017.
The planned rebuild of the Waterval No. 2 furnace in the first quarter of 2017, and a high-pressure water leak at the converter plant in June 2017, delayed refining the backlog of material from 2016 to the second half of the year, with the full additional 100,000 ounces refined by year end.
Platinum sales volumes increased by 4% to 2,504,600 ounces (2016: 2,415,700 ounces), while palladium sales volumes rose by 3% to 1,571,700 ounces (2016: 1,532,100 ounces), in line with higher refined production.
Operational outlook
Platinum production (metal in concentrate) for 2018 is expected to be 2.3-2.4 million ounces.
Palladium production (metal in concentrate) for 2018 is expected to be 1.5-1.6 million ounces.
IRON ORE AND MANGANESE
Financial and operational metrics
Production
volume
Sales
volume
Price
Unit
cost*
Revenue*
Underlying
EBITDA*
Underlying EBITDA margin
Underlying
EBIT*
Capex*
ROCE*
Mt(1)
Mt
$/t(2)
$/t(3)
$m
$m
$m
$m
Iron Ore and
Manganese
-
-
-
-
5,831
2,357
40%
1,978
252
21%
Prior year
-
-
-
-
3,426
1,536
45%
1,275
269
12%
Kumba Iron Ore
45.0
44.9
71
31
3,486
1,474
42%
1,246
229
47%
Prior year
41.5
42.5
64
27
2,801
1,347
48%
1,135
160
51%
Iron Ore Brazil
16.8
16.5
65
30
1,405
435
31%
335
23(5)
6%
Prior year
16.1
16.2
54
28
-
(6)
-
(6)
109
(1)%
Samancor(4)
3.6
3.6
-
-
940
529
56%
478
-
115%
Prior year
3.3
3.4
-
-
625
258
41%
209
-
59%
Projects and corporate
-
-
-
-
-
(81)
-
(81)
-
-
Prior year
-
-
-
-
-
(63)
-
(63)
-
-
(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 the average realised export basket price (FOB Au) (wet basis).
(3) Unit costs for Kumba Iron Ore are on an FOB dry basis. Unit costs for Iron Ore Brazil are on an FOB wet basis.
(4) Production, sales and financials include ore and alloy.
(5) $80 million of capital expenditure offset by capitalised cash inflows of $31 million relating to working capital in place at 31December2016, in addition to a $25 million inflow relating to capex hedges.
Financial and operating overview
Kumba
Underlying EBITDA of $1,474 million was 9% higher (2016: $1,347 million), with a 6% improvement in total sales volumes and an 11% increase in the realised price being offset by a 15% increase in FOB unit costs. The increase in unit costs was largely driven by the impact of the stronger South African rand (rand FOB unit costs increased by 2%) and cost inflation, including higher rail costs. This was partly offset, however, by productivity gains in mining and processing that led to an 8% rise in production, and through a higher premium achieved for lump product.
In line with higher production volumes, export sales volumes increased by 7% to 41.6 Mt (2016: 39.1 Mt). Total finished product stock also increased to 4.3 Mt (2016: 3.5 Mt), reflecting the increase in output.
Iron Ore Brazil
Underlying EBITDA amounted to $435 million (2016: $6 million loss), reflecting the operation's continued rampup to its current operating capacity and the cessation of capitalisation of operating results since January 2017. The average FOB realised price of $65/wet metric tonne (equivalent to $71/dry metric tonne) was $11/tonne, or 20%, higher than that achieved in 2016. FOB unit costs increased by 7% to $30/wet metric tonne (2016:$28/wet metric tonne) as higher production volumes and the implementation of cost reduction initiatives only partly offset the strengthening of the Brazilian real.
Samancor
Underlying EBITDA increased by $271 million to $529 million (2016: $258 million), driven mainly by significantly higher realised manganese ore and alloy prices and a 7% increase in ore sales.
Markets
Iron ore
2017
2016
Average market price (IODEX 62% Fe CFR China - $/tonne)
71
58
Average market price (MB 66% Fe Concentrate CFR - $/tonne)
87
69
Average realised price (Kumba export - $/tonne) (FOB Saldanha)
71
64
Average realised price (Minas-Rio - $/tonne) (FOB wet basis)
65
54
Kumba's outperformance over the IODEX (Platts) 62% Fe CFR China index is primarily representative of the higher iron (Fe) content and the relatively high proportion (approximately 66%) of lump in the overall product portfolio.
Minas-Rio produces higher grade products than the reference product used for the IODEX 62% Fe index. The pricing of Minas-Rio's products reflects the higher Fe content and lower gangue of those products compared with the IODEX 62% reference. IODEX 62% is referred to for comparison purposes only.
Manganese
During 2017, the average benchmark manganese ore price (benchmark CRU 44% CIF China) increased by 36% to $5.97/dmtu (2016: $4.38/dmtu), largely attributable to higher Chinese steel production and limited ore supply in the market, resulting from production cuts made in late 2015 and early 2016.
Operating performance
Kumba
Sishen's production increased by 10% to 31.1 Mt (2016: 28.4 Mt) following improvements in mining productivity resulting from fleet efficiencies and higher plant yields, brought about from the implementation of the Operating Model. Consequently, the amount of waste mined rose, as planned, to 162 Mt (2016: 137 Mt), an 18% increase. Additional operator training, changed shift patterns, together with higher workforce attendance rates, yielded positive results in the form of increased direct operating hours, enabling the mine to reduce its reliance on contractors.
Kolomela's production increased by 9% to 13.9 Mt (2016: 12.7 Mt), also reflecting productivity improvements following the roll-out of the Operating Model. Waste mining volumes grew by 11% to 55.6 Mt (2016: 50.2 Mt), supporting higher production levels. The Kolomela modular plant delivered 0.5 Mt, although performance was affected by delays in the ramp-up of the crushing plant.
Iron Ore Brazil
Minas-Rio's production of 16.8 Mt (wet basis) was 4% higher (2016: 16.1 Mt) as the operation continued to ramp up its current operating capacity. The ramp-up schedule was affected as mining operations were restricted to the remaining Ore Reserves in the Step 2 licence area, which included lower grade ore.
Samancor
Manganese ore output increased by 11% to 3.5 Mt (attributable basis) (2016: 3.1 Mt). Production from the Australian operations was 7% higher owing to increased concentrator throughput and higher yields as a result of favourable weather and the availability of suitable feed types. The South African operations increased production by 18%, taking advantage of stronger demand and pricing and the sale of lower quality fines product.
Production of manganese alloys increased by 8% to 149,200 tonnes (attributable basis)
(2016: 137,800 tonnes), mainly as a result of improved power availability at the Australian operations. In South Africa, manganese alloy production continued to utilise only one of the operation's four furnaces.
Operational outlook
Kumba
Kumba's full year production guidance for 2018 has been increased to 44-45 Mt following the recent strong performance at both Sishen and Kolomela.
Sishen is expected to produce 30-31 Mt of product and mine 170-180 Mt of waste.
Kolomela is expected to produce around 14 Mt, while waste removal, in support of the increased annual output, is expected to be around 55-57 Mt.
Iron Ore Brazil
Minas-Rio continues to focus on obtaining the Step 3 operating licence required for the operation to access the full range of run-of-mine ore grades and target the operation's nameplate capacity of 26.5 Mt (wet basis). The Step 3 installation licence was granted in January 2018, following delays during 2017, which will allow the Step 3 construction work to proceed. As a consequence of receiving the installation licence, the Provisional Operational Authorisation ('APO') is expected before November 2018 and the full Step 3 operational licence by mid-2019.
Production guidance for 2018 has been lowered to 13-15 Mt (previously 15-18 Mt) as a result of the lower ore grades at the remaining Step 2 area and the delays to the Step 3 operational licence process.
In 2018, unit costs are expected to increase as a result of lower production volumes, and to be in the region of $35/wet metric tonne.
Samancor
Australian manganese ore production guidance of 2.1 Mwmt (100% basis) for 2018 remains unchanged. South African manganese ore production guidance has increased by 8% to 3.4 Mwmt (100% basis), subject to continued strong market demand.
Legal
Sishen consolidated mining right granted
Sishen's application to extend the mining right by the inclusion of the adjacent Prospecting Rights was granted on 6 July 2017, and the process to amend the Sishen mining right continues. Mining operations in this area will only commence once the required environmental authorisation has been approved, which is expected soon. The grant allows Sishen mine to expand its current mining operations within the adjacent Dingleton area.
COAL
Financial and operational metrics
Production
volume
Sales
volume
Price
Unit
cost*
Revenue*
Underlying
EBITDA*
Underlying EBITDA margin(5)
Underlying
EBIT*
Capex*
ROCE*
Mt(1)
Mt(2)
$/t(3)
$/t(4)
$m
$m
$m
$m
Coal
48.9
49.0
-
-
7,211
2,868
46%
2,274
568
67%
Prior year
50.7
50.6
-
-
5,263
1,646
36%
1,112
613
29%
Metallurgical Coal
19.7
19.8
185
61
3,675
1,977
54%
1,594
416
86%
Prior year
20.9
20.7
112
51
2,547
996
39%
661
523
30%
Coal South Africa
18.6
18.6
76
44
2,746
588
32%
466
152
54%
Prior year
19.1
19.1
60
34
2,109
473
33%
366
90
41%
Cerrejn
10.6
10.6
75
31
790
385
49%
296
-
35%
Prior year
10.7
10.8
56
28
607
235
39%
143
-
17%
Projects and corporate
-
-
-
-
-
(82)
-
(82)
-
-
Prior year
-
-
-
-
-
(58)
-
(58)
-
-
(1) Production volumes are saleable tonnes. South African production volume is export production only and excludes Eskom-tied operations volumes of 23.9 Mt (2016: 24.8 Mt) and other domestic production of 7.5Mt (2016: 9.9 Mt). Metallurgical Coal production volumes excludes thermal coal production volumes of 1.6 Mt (2016: 9.5 Mt, including 5.6 Mt of domestic thermal coal).
(2) South African sales volumes exclude all domestic sales of 32.0 Mt (2016: 34.5 Mt) and non-equity traded sales of 7.6 Mt (2016: 6.1Mt). Metallurgical Coal sales volumes exclude thermal coal sales of 1.8 Mt (2016: 9.6 Mt, including 5.4 Mt of domestic thermal coal).
(3) Metallurgical Coal is the weighted average hard coking coal and PCI sales price achieved. Coal South Africa is the weighted average export thermal coal price achieved.
(4) FOB cost per saleable tonne, excluding royalties. Metallurgical Coal excludes study costs and Callide. Coal South Africa unit cost is for the export operations.
(5) Excludes impact of third-party sales and Eskom-tied operations.
Financial and operating overview
Metallurgical Coal
Underlying EBITDA doubled to $1,977 million (2016: $996 million), owing to a 65% increase in the metallurgical coal realised price and higher production at all three underground operations. This was partly offset by planned production cuts at Dawson and Capcoal open cut operations and the impact of divestments on output. Following the divestments of Foxleigh (a PCI producer) and Callide (a domestic and export thermal coal producer), and the cessation of mining activities at Drayton (an export thermal coal producer), the business now produces a greater proportion of higher-margin hard coking coal (80% of total production, compared with 53% in 2016).
Coal South Africa
Underlying EBITDA increased by 24% to $588 million (2016: $473 million), mainly attributable to a 27% increase in the export thermal coal price. US dollar unit costs for the export trade operations increased by 29% to $44/tonne (2016: $34/tonne), owing to the stronger South African rand ($4/tonne impact), lower production ($4/tonne impact), mainly at Khwezela, and cost-inflation pressures ($2/tonne).
The sale of the Eskom-tied domestic thermal coal operations consisting of New Vaal, New Denmark, and Krielcollieries, as well as four closed collieries (together, 'Eskom-tied operations') by Anglo Operations Proprietary Limited and Anglo American Inyosi Coal Proprietary Limited to a wholly owned subsidiary of SeritiResources Holdings Proprietary Limited was announced on 10 April 2017 for a consideration payable, as at 1 January 2017, of R2.3 billion (approximately $164 million). The transaction is expected to complete on 1March 2018.
The sale of the New Largo thermal coal project and Old New Largo closed colliery in South Africa (together, 'New Largo') by Anglo American Inyosi Coal Proprietary Limited to New Largo Coal Proprietary Limited for R850 million (approximately $71 million), was announced on 29 January 2018. The sale is subject to conditions precedent customary for a transaction of this nature, including regulatory approvals in South Africa. The transaction is expected to close in the second half of 2018.
The financial results reported for the period ended 31 December 2017 include the Eskom-tied domestic thermal coal operations and New Largo.
Cerrejn
Underlying EBITDA increased to $385 million (2016: $235 million), owing mainly to higher export thermal coal prices, partly offset by a 2% decrease in sales volumes.
Markets
Metallurgical coal
2017
2016
Average market price for premium low-volatility hard coking coal ($/tonne)(1)
188
143
Average market price for premium low-volatility PCI ($/tonne)(1)
119
97
Average realised price for premium low-volatility hard coking coal ($/tonne)
187
119
Average realised price for PCI ($/tonne)
125
77
(1)Representsaveragespotprices.Prioryearpriceswerepreviouslybasedonthequarterlyaveragebenchmarkandhavebeenrestatedaccordingly.
Average realised prices differ from the average market price owing to differences in material grade and timing of contracts.
Prices in 2017 were supported by higher steel prices and strong demand globally, as well as by supply constraints arising from wet weather in Queensland in the second quarter.
Thermal coal
2017
2016
Average market price ($/tonne, FOB Australia)
89
66
Average market price ($/tonne, FOB South Africa)
84
64
Average market price ($/tonne, FOB Colombia)
78
58
Average realised price - Export Australia ($/tonne, FOB) 
91
55
Average realised price - Export South Africa ($/tonne, FOB)
76
60
Average realised price - Domestic South Africa ($/tonne) 
21
17
Average realised price - Colombia ($/tonne, FOB)
75
56
The average realised price for thermal coal will differ from the average market price owing to timing and quality differences relative to the industry benchmark. The difference in the realised price compared with the benchmark price, between 2016 and 2017, reflects changing quality mix owing to a higher proportion of secondary products being sold into the export market.
The thermal coal market saw the positive price effects of the Chinese domestic coal production rationalisation, which supported coal imports into China and lifted seaborne pricing. On the supply side, Australia was stable, while Indonesia was constrained owing to mining issues associated with ongoing wet weather. The Atlantic region saw coal prices supported by higher electricity prices, partly driven by nuclear outages in France.
Operating performance
Metallurgical Coal
Production from the underground longwall operations was 14% higher at 12.3 Mt (2016: 10.8 Mt), and included 0.3 Mt from the ramp-up of Grosvenor and record production of 5.4 Mt from Moranbah. Both Capcoal open cut and Dawson recorded lower production as the sites established alternative pit areas and removed higher-cost production.
Following a recovery from the geological issues experienced in the first six months, and a strong operational performance through the third quarter, Grosvenor completed its first longwall panel during the final quarter of 2017, and also completed an extended longwall move in order to rectify defective components identified during the first panel. Production on the second longwall panel commenced in December and is in line with the rampup plan.
Coal South Africa
Export production decreased by 3% to 18.6 Mt (2016: 19.1 Mt), with continued productivity improvements at the underground operations more than offset by a self-enforced 100-hour safety stoppage at all operations following the third fatality of the year. In addition, at Khwezela there were operational challenges with the waste fleet and coal recovery operations. Total production from trade mines decreased by 11% to 22.0 Mt (2016:24.6Mt), mainly owing to the planned ramp-down of Khwezela's Eskom pit, which reached its end of life in the first half of 2017.
Production from Eskom-tied operations decreased by 4% to 23.9 Mt (2016: 24.8 Mt) due to lower Eskom offtake from New Vaal and reserve constraints at Kriel as it approaches the end of its mine life.
Cerrejn
Anglo American's attributable output from its 33.3% shareholding in Cerrejn was 10.6 Mt, in line with the prior year.
Operational outlook
Metallurgical Coal
Export metallurgical coal production guidance for 2018 is unchanged at 20-22 Mt.
Export thermal coal
Full year production guidance for 2018 for export thermal coal from South Africa and Cerrejn is unchanged at 29-31 Mt.
NICKEL
Financial and operational metrics
Production
volume
Sales
volume
Price
C1 unit
cost*
Revenue*
Underlying
EBITDA*
Underlying EBITDA margin
Underlying
EBIT*
Capex*
ROCE*
t
t
c/lb
c/lb
$m
$m(1)
$m(1)
$m
Nickel
43,800
43,000
476
365
451
81
18%
0
28
0%
Prior year
44,500
44,900
431
350
426
57
13%
(15)
62
(1)%
(1) Nickel segment includes $3 million projects and corporate costs (2016: $10 million).
Financial and operating overview
Underlying EBITDA increased by 42% to $81 million (2016: $57 million), reflecting a higher nickel price, partly offset by the unfavourable impact of the stronger Brazilian real and cost inflation.
Nickel unit costs increased by 4% to 365 c/lb (2016: 350 c/lb) as adverse exchange rates and inflation were only partly compensated by other cost-saving efforts, including lower energy costs.
Markets
2017
2016
Average market price (c/lb)
472
436
Average realised price (c/lb)
476
431
The average market price is the LME nickel price, from which ferronickel pricing is derived. Ferronickel is traded based on discounts or premiums to the LME price, depending on market conditions, supplier products and consumer preferences.
Differences between market prices and realised prices are largely due to variances between the LME and the ferronickel price.
Operating performance
Nickel output decreased by 2% to 43,800 tonnes (2016: 44,500 tonnes) as instabilities at both smelting operations negatively affected Barro Alto's production performance in February 2017. The root causes were addressed and the operations returned to stable performance from the second quarter. Codemin's production of metal was in line with the prior year at 9,000 tonnes.
Operational outlook
Production guidance for 2018 has been lowered to 42,000-44,000 tonnes, as a result of planned maintenance at Barro Alto's plant.
CORPORATE AND OTHER
Financial metrics
Revenue*
Underlying
EBITDA*
Underlying
EBIT*
Capex*
$m
$m
$m
$m
Segment
5
(292)
(313)
9
Prior year
499
(5)
(71)
40
Niobium and Phosphates
-
-
-
-
Prior year
495
118
79
26
Exploration
-
(103)
(103)
-
Prior year
-
(107)
(107)
-
Corporate activities and unallocated costs
5
(189)
(210)
9
Prior year
4
(16)
(43)
14
Financial and operating overview
Corporate and other reported an underlying EBITDA loss of $292 million (2016: $5 million loss).
Niobium and Phosphates
The sale of the Niobium and Phosphates business to China Molybdenum Co Ltd. was completed on 30September 2016.
Exploration
Exploration expenditure decreased to $103 million (2016: $107 million), reflecting a general reduction across most of the commodities, driven primarily by lower drilling activities.
Corporate activities and unallocated costs
Underlying EBITDA amounted to a $189 million loss (2016: $16 million loss), driven primarily by a yearonyear loss recognised in the Group's self-insurance entity, reflecting lower premium income and higher net claims and settlements during 2017.
For further information, please contact:
Media
Investors
UK
James Wyatt-Tilby
james.wyatt-tilby@angloamerican.com
Tel: +44 (0)20 7968 8759
UK
Paul Galloway
paul.galloway@angloamerican.com
Tel: +44 (0)20 7968 8718
Marcelo Esquivel
marcelo.esquivel@angloamerican.com
Tel: +44 (0)20 7968 8891
Trevor Dyer
trevor.dyer@angloamerican.com
Tel: +44 (0)20 7968 8992
South Africa
Pranill Ramchander
pranill.ramchander@angloamerican.com
Tel: +27 (0)11 638 2592
Ann Farndell
ann.farndell@angloamerican.com
Tel: +27 (0)11 638 2786
Sheena Jethwa
sheena.jethwa@angloamerican.com
Tel: +44 (0)20 7968 8680
Notes to editors:
Anglo American is a globally diversified mining business. Our portfolio of world-class competitive mining operations and undeveloped resources provides the raw materials to meet the growing consumer-driven demands of the world's developed and maturing economies. Our people are at the heart of our business. It is our people who use the latest technologies to find new resources, plan and build our mines and who mine, process and move and market our products to our customers around the world.
As a responsible miner - of diamonds (through DeBeers), copper, platinum and other precious metals, iron ore, coal and nickel - we are the custodians of what are precious natural resources. We work together with our key partners and stakeholders to unlock the long-term value that those resources represent for our shareholders and for the communities and countries in which we operate - creating sustainable value and making a real difference.
www.angloamerican.com
Webcast of presentation:
A live webcast of the results presentation, starting at 9.00am UK time on 22 February 2018, can be accessed through the Anglo American website at www.angloamerican.com
Note: Throughout this results announcement, '$' denotes United States dollars and 'cents' refers to United States cents. 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, acquisition and divestment strategy, dividend policy, plans and objectives of management for future operations (including development plans and objectives relating to Anglo American's products, production forecasts and Ore Reserves and Mineral Resources), 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.
Anglo American plc
20 Carlton House Terrace London SW1Y 5AN United Kingdom
Registered office as above. Incorporated in England and Wales under the Companies Act 1985.
Registered Number: 3564138 Legal Entity Identifier: 549300S9XF92D1X8ME43

This information is provided by RNS
The company news service from the London Stock Exchange
END
FR MMGZZLMZGRZM