Anglo American Interim Results 2017

RNS Number : 2197M

Anglo American PLC

27 July 2017

 

HALF YEAR FINANCIAL REPORT

for the six months ended 30 June 2017

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27 July 2017

Anglo American Interim Results 2017

Dividend resumed as net debt reduced to $6.2 billion, driven by $2.7 billion free cash flow

Mark Cutifani, Chief Executive of Anglo American, said: "The benefits of our relentless focus on driving efficiency through the operations and on upgrading the quality of our portfolio have resulted in a step-change in operational performance and profitability. In the first half, we have delivered a further 20% increase in productivity, a 68% increase in underlying EBITDA and $2.7 billion of attributable free cash flow - the outcome of extensive self-help work and tightly controlled capital expenditure, within a stronger price environment.

"We have nearly halved our net debt to $6.2 billion over the past year to take us well below our year-end target of $7 billion. Our materially improved balance sheet strength, with gearing⁽¹⁾ at 19% and net debt to annualised EBITDA of 0.8x, has supported the decision to resume dividend payments six months early, establishing a pay-out policy at a targeted level of 40% of underlying earnings. This equates to a dividend payment of 48 US cents per share for this half year.

"Looking forward, our focus will continue to be on improving operational performance and converting production and improving costs into consistent cash flow generation, while maintaining strict capital allocation discipline. We are now in a position to consider value accretive growth options and capital returns from within our substantial undeveloped mineral endowment."

Highlights - six months ended 30 June 2017

·      Generated underlying EBITDA* of $4.1 billion, a 68% increase (H1 2016: $2.5 billion)

-     Underlying EBITDA margin increased by additional five percentage points vs. FY 2016

·      Profit attributable to equity shareholders of $1.4 billion (H1 2016: $0.8 billion loss)

·      Delivered cost and volume improvements of $0.6 billion - on track to meet $1 billion target for full year

-     Production volumes increased by 9% (Cu eq.)⁽²⁾

·       Attributable free cash flow* of $2.7 billion (H1 2016: $1.1 billion)

·       Reduced net debt* by 27% to $6.2 billion (FY 2016: $8.5 billion), ahead of $7 billion year-end target

·      Resumed dividend at 48 US cents per share for the first half, equal to 40% of first half underlying earnings*

-     Dividend policy to target pay-out of 40% of underlying earnings*

Six months ended US$ million, unless otherwise stated	30 June 2017	30 June 2016	Change
Underlying EBITDA*	4,116	2,450	68%
Underlying earnings*	1,536	698	120%
Profit/(loss) for the financial period attributable to equity shareholders of the Company	1,415	(813)	-
Underlying earnings per share* ($)	1.19	0.54	-
Earnings per share ($)	1.09	(0.63)	-
Dividend per share ($)	0.48	-	-
Notes to the highlights and table are shown at the bottom of this section.

⁽¹⁾      Gearing is defined in note 14 to the Condensed financial statements.

⁽²⁾      Copper equivalent is normalised for the sale of Kimberley Mines (De Beers), our niobium and phosphates business, Foxleigh and Callide (Coal), to reflect Snap Lake (De Beers) being placed onto care and maintenance, and the closure of Drayton (Coal).

Words with this symbol * are defined as Alternative Performance Measures. For more information on the APMs used by the Group, including definitions, please refer to the Alternative Performance Measures section of the Group's Annual Report for the year ended 31 December 2016.

Safety and environmental performance

The first six months of 2017 saw a 50% reduction in fatalities compared to the first half of 2016. Anglo American's first priority is to keep its people safe at work and, while there are clear signs of progress, the critical controls across the business continue to be the focus for achieving zero harm. Recordable case frequency rates worsened during the first quarter, before improving strongly in the second quarter, emphasising the importance of the work to ensure consistent application of safe operating standards.

Ironing out the low occurrence of environmental incidents - reduced by almost 90% since 2013 - is the subject of 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 productivity and overall business improvements.

Financial review of Group results for the six months ended 30 June 2017

Summary

Anglo American has significantly restructured - and, as a result, upgraded the quality of - its portfolio of mining assets since 2013, moving from 68 assets to 37 at the end of June 2017. This transformation has been achieved through the extensive operational self-help and other efficiency work, together with the sale, placing onto care and maintenance and closure of assets, resulting in a step-change in Anglo American's operational performance and profitability.

For the six months ended 30 June 2017, Anglo American reported a 68% increase in underlying EBITDA to $4.1 billion, while operating profit of $2.6 billion increased by $2.6 billion (H1 2016: $34 million loss).

Anglo American reported a profit for the period attributable to equity shareholders of $1.4 billion (H1 2016: $0.8 billion loss), with underlying earnings of $1.5 billion (H1 2016: $0.7 billion). Net debt decreased by $2.3 billion to $6.2 billion (31 December 2016: $8.5 billion).

Average market prices increased by 30%, contributing favourably to underlying EBITDA by $1.5 billion. The realised prices for metallurgical coal and Kumba's iron ore increased by 151% and 29% respectively, partially offset by a 12% decrease in the average realised price for rough diamonds. Stronger producer country currencies had the effect of reducing underlying EBITDA ($(0.5) billion impact), principally driven by a 14% strengthening of the South African rand against the dollar.

The continuing ramp-up at Minas-Rio in Brazil, following the end of the capitalisation of operating cash flows in January 2017, materially benefited underlying EBITDA, as did higher sales volumes at De Beers, reflecting stronger demand for lower-value goods in Q1 2017. This was partially offset by lower sales volumes at Copper due to port closures arising from adverse weather conditions, and the temporary eight week suspension of mining operations at El Soldado.

Looking beyond the first six months of 2017, Anglo American will continue to focus on improving the performance of its operations in order to convert production volumes and further improved costs into consistent cash flow generation, while also ensuring that strict capital allocation discipline is maintained across the Group. Anglo American has materially strengthened its balance sheet and resumed dividend payments six months ahead of schedule. Anglo American is now in a position to consider value accretive growth options and capital returns from within its substantial undeveloped mineral endowment.

Operational performance

Overall, operational performance was strong across the business with copper equivalent production* 9% higher than for H1 2016. Rough diamond production increased by 21%, reflecting the sustained improvement in trading conditions since late 2015 and the ramp-up of Gahcho Kué in Canada. In South Africa, iron ore production at Sishen increased by 35% following improvements in mining productivity, gained from fleet efficiencies and higher plant yields. Total platinum production (metal in concentrate) was 3% higher, driven by a continued strong performance at Mogalakwena in South Africa and at Unki in Zimbabwe. Production from Coal South Africa's export mines was broadly in line with the corresponding period in 2016.

In Chile, copper production at Los Bronces was 4% lower, largely because of planned maintenance at both processing plants in H1 2017. At Collahuasi, production increased by 1% driven by higher ore grades, despite major planned maintenance at the processing plant. Output at El Soldado decreased by 12%, following the temporary suspension of mine operations (around 6,000 tonnes of lost production). Production from Metallurgical Coal's continuing operations was on par with 2016; the impact of Cyclone Debbie on the Queensland rail network resulted in operational delays in processing and railing stocks, resulting in a build-up, which will wind down during H2 2017. In Brazil, the ramp-up of operations at Minas-Rio continued, and at Nickel, production declined by 5% due to unplanned maintenance at Barro Alto in Q1 2017.

 

The Group achieved an encouraging cost performance in H1 2017. The Group's copper equivalent unit cost* has increased by 12% compared to H1 2016, largely driven by stronger producer currencies (9%), as well as inflation and cost escalation (4%) and geological issues affecting the Grosvenor ramp-up. These increases were partly offset by cost savings across the Group, higher volumes at De Beers, and the continued ramp up at Minas-Rio. Efficiencies at De Beers contributed to a 3% decrease in unit costs despite unfavourable exchange rates and an increasing proportion of waste mining costs being expensed at Venetia.

In South Africa, the stronger rand weighed on cash costs materially, affecting unit costs at Kumba, Platinum and Coal South Africa. In local currency terms, Kumba FOB cash unit costs increased by 3%, with the impact of cost inflation partly offset by productivity gains from fleet efficiencies and higher plant yields. At Platinum, rand unit costs rose by 3%, with the effects of inflation offset to some extent by higher volumes and cost improvements. Rand unit costs at Coal South Africa Trade Operations increased by 7%, largely driven by cost inflation.

At Copper, unit cost improvements from productivity and cost-reduction initiatives were more than offset by the impact of inflation and a stronger Chilean peso, combined with arsenic penalties at Collahuasi and lower by-product credits, resulting in a net increase in C1 unit costs of 9%. Unit costs at Minas-Rio were 9% lower, reflecting the continued ramp-up. Nickel unit costs increased by 12% as adverse exchange rates, cost inflation and lower sales volumes were partly compensated by lower input costs, including lower energy costs.

Income statement

Underlying EBITDA

Group underlying EBITDA increased by 68% to $4.1 billion (H1 2016: $2.5 billion).

$ million	6 months ended 30 June 2017	6 months ended 30 June 2016
De Beers	786	766
Copper	586	424
Platinum	276	290
Iron Ore and Manganese	1,167	512
Coal	1,382	389
Nickel	15	24
Corporate and other(1)	(96)	45
Total	4,116	2,450

⁽¹⁾      Comparative information for Corporate and other has been restated to include Niobium and Phosphates, which was sold in 2016.

 

Underlying EBITDA reconciliation H1 2016 to H1 2017

$ million
2016 Underlying EBITDA*		2,450
Price		1,460
Foreign exchange		(478)
Inflation		(180)
Volume	379
Cost	211
Net volume and cost improvements		590
Other		274
2017 Underlying EBITDA*		4,116

Underlying earnings

Group underlying earnings increased by 120% to $1.5 billion (H1 2016: $0.7 billion).

					6 months ended 30 June 2017
$ million	Underlying EBITDA*	Depreciation and amortisation	Net finance costs and income tax expense	Non-controlling interests	Underlying  earnings*
De Beers	786	(238)	(146)	(61)	341
Copper	586	(283)	(126)	(37)	140
Platinum	276	(164)	(60)	(15)	37
Iron Ore and Manganese	1,167	(191)	(261)	(217)	498
Coal	1,382	(262)	(331)	(11)	778
Nickel	15	(40)	17	-	(8)
Corporate and other	(96)	(7)	(150)	3	(250)
Total	4,116	(1,185)	(1,057)	(338)	1,536

 

Profit/(loss) for the financial period attributable to equity shareholders of the Company

Profit for the financial period attributable to the equity shareholders of the Company was $1.4 billion, compared with a loss of $0.8 billion in 2016.

Reconciliation to underlying earnings from profit/(loss) for the financial period attributable to equity shareholders of the Company.

$ million	6 months ended 30 June 2017	6 months ended 30 June 2016
Underlying earnings*	1,536	698
Operating special items	152	(1,360)
Operating remeasurements	(45)	12
Non-operating special items	(145)	(34)
Financing special items and remeasurements	(49)	(236)
Special items and remeasurements tax	(11)	72
Non-controlling interests on special items and remeasurements	(22)	24
Share of associates' and joint ventures' special items and remeasurements	(1)	11
Profit/(loss) for the financial period attributable to equity shareholders of the Company	1,415	(813)
Underlying earnings per share* ($)	1.19	0.54
Earnings per share ($)	1.09	(0.63)

Net finance costs

Net finance costs, before special items and remeasurements, excluding associates and joint ventures, were $217 million (H1 2016: $109 million). The increase was principally driven by a reduction in capitalised interest from $200 million to $15 million as borrowing costs are no longer being capitalised at Minas-Rio and Grosvenor. This was partially offset by lower interest expense as a result of the reduction in gross debt.

Tax

The underlying effective tax rate* was 30.2% in H1 2017 (H1 2016: 32.2%), this was lower due to the net impact of enhanced tax depreciation in the prior year.

Special items and remeasurements

The principal special items and remeasurements recorded in the period were an impairment reversal of $0.2 billion relating to El Soldado in Copper, and the write-down to fair value of Union mine in Platinum of $0.2 billion. Full details of the special items and remeasurements recorded in the year are included in note 7 to the Condensed financial statements.

Attributable ROCE*

Attributable ROCE* increased to 18% in H1 2017 (H1 2016: 8%), primarily because of improved attributable underlying EBIT*, driven by higher prices, higher sales volumes at De Beers, the ramp-up of production at Minas-Rio in Brazil and ongoing delivery of cost savings across the portfolio. This improvement was partially offset by inflation and stronger producer country currencies. Average attributable capital employed was lower at $27.1 billion (H1 2016: $27.4 billion), owing to ongoing asset depreciation and several asset divestments, though offset in part by capital expenditure*.

Balance sheet

Net assets of the Group increased by $2.2 billion to $26.5 billion (31 December 2016: $24.3 billion). This reflected the reduction in net debt and net foreign exchange gains relating to operations with rand-functional currencies. Capital expenditure of $0.7 billion was more than offset by depreciation of $1.1 billion.

Net debt

$ million
Opening net debt* at 1 January 2017			(8,487)
Underlying EBITDA* from subsidiaries and joint operations	3,554
Working capital movements	231
Other cash flows from operations	(106)
Cash flows from operations	3,679
Capital expenditure*	(731)
Cash tax paid	(298)
Dividends from associates, joint ventures and financial asset investments	340
Net interest(1)	(204)
Dividends paid to non-controlling interests	(86)
Attributable free cash flow*	2,700
Disposals	(100)
Other net debt movements	(334)
Total movement in net debt*			2,266
Closing net debt* at 30 June 2017			(6,221)

 ⁽¹⁾   Includes cash inflows of $62 million, relating to interest payments on derivatives hedging net debt, which are included in cash flows from derivatives related to financing activities.

Net debt (including related derivatives) of $6.2 billion was $2.3 billion lower than at 31 December 2016, and $5.5 billion lower than at 30 June 2016, representing gearing of 19.0% (31 December 2016: 25.9%). Net debt at 30 June 2017 comprised cash and cash equivalents of $7.4 billion (31 December 2016: $6.0 billion) and gross debt, including related derivatives, of $13.6 billion (31 December 2016: $14.5 billion). The reduction in net debt was driven by strong operating cash inflows.

Cash flow

Cash flows from operations

Cash flows from operations increased by $0.9 billion compared with H1 2016 to $3.7 billion. This principally reflected the increase in underlying EBITDA from subsidiaries and joint operations. Cash inflows on operating working capital were $0.2 billion (H1 2016: inflows of $0.5 billion), including a reduction in inventories at De Beers of $0.2 billion and an increase in operating payables at Platinum of $0.3 billion, of which $0.2 billion relates to a key customer advancing pre-payment for future guaranteed delivery of metal. These inflows were offset by, amongst others, an increase in platinum inventories of $0.1 billion following a high-pressure water leak at the ACP and copper inventories of $0.1 billion following shipping delays driven by port closures.

Attributable free cash flow

Attributable free cash flow increased by $1.6 billion to an inflow of $2.7 billion compared with H1 2016. The improvement was driven by an increase in cash flows from operations of $0.9 billion and a $0.4 billion reduction in capital expenditure.

Capital expenditure

Capital expenditure (excluding capitalised operating cash flows) decreased to $0.8 billion (H1 2016: $1.2 billion). This was driven by a 75% ($0.4 billion) decrease in expansionary capital expenditure, mainly at Minas-Rio (Iron Ore Brazil), Grosvenor (Metallurgical Coal) and Gahcho Kué (De Beers), all previously projects in execution, at which capitalisation has ceased. Expansionary capital expenditure during the period was focused on the ongoing construction of De Beers' Venetia underground mine in South Africa. Stay-in-business capital expenditure increased by 13% to $0.4 billion, and stripping and development capital expenditure increased by 10% to $0.3 billion, both due to the inclusion of spend at newly-commissioned assets and stronger producer currencies.

Capital expenditure (excluding capitalised operating cash flows) for the 2017 full year is expected to be approximately $2.3 billion, $0.2 billion lower than the previous guidance of $2.5 billion.

Liquidity and funding

At 30 June 2017, the Group had undrawn committed bank facilities of $8.8 billion and cash of $7.4 billion. The Group's liquidity position increased by $0.4 billion in H1 2017 to $16.2 billion, while gross debt, including related derivatives, decreased by $0.9 billion to $13.6 billion (31 December 2016: $14.5 billion), primarily owing to $0.5 billion of bond maturities and a $0.3 billion facility repayment in respect of Kumba Iron Ore. In March 2017, the Group completed bond buyback transactions consisting of euro- and sterling-denominated bonds with maturities from April 2018 to June 2019. This was followed, in April 2017, with a dual tranche 5- and 10‑year issuance in the US bond markets.

Dividends

In February 2017, Anglo American announced that it was maintaining the dividend suspension and that it was expecting that dividend payments would resume at the end of 2017, payable in early 2018. Given continued operational improvement and strong cash flow generation during the first half of 2017, the Group has reached its net debt and gearing targets earlier than expected and is thus in a position to resume dividend payments.

The Board has recommended adopting a pay-out ratio driven dividend policy, which is in accordance with Anglo American's capital allocation framework and in line with the Group's commitment to sustainably return cash to shareholders through the cycle, whilst retaining a high level of balance sheet flexibility. Going forward, the Board's target is to distribute 40% of underlying earnings* and, in line with this pay-out ratio, proposes an interim dividend of 48 US cents per share. This dividend policy will result in variability of dividend payments in respect of each six month period, given that the industry faces volatility in commodity prices and exchange rates, among other factors. The interim dividend is applicable to shareholders on the registers on Friday 11 August 2017 and payable on Friday 22 September 2017.

Portfolio upgrade

Anglo American continues to review, and seek opportunities to upgrade, the portfolio as an integral part of its disciplined capital-allocation framework.

In the first six months of 2017, Anglo American's disposal of its 83.3% interest in the Dartbrook coal mine (Metallurgical Coal) to Australian Pacific Coal Limited was completed. Anglo American, through various subsidiaries, entered into several sale and purchase agreements, the completion of which is subject to, inter alia, regulatory approvals:

·   to sell its 88.2% interest in the Drayton thermal coal mine and Drayton South project in Australia to Malabar Coal Limited;

·  to sell its Eskom-tied domestic thermal coal operations in South Africa to a wholly-owned subsidiary of Seriti Resources Holdings Proprietary Limited; and

·  to sell Anglo American 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 will continue to refine its asset portfolio, ensuring that capital is deployed to generate enhanced returns through the cycle.

South African regulatory environment

On 15 June 2017, the South African Department of Mineral Resources (DMR) published its Reviewed Mining Charter 2017 (MCIII). Anglo American has expressed its concern that, unlike the collaborative process for agreeing the 2004 and 2010 Mining Charters, the MCIII was not concluded through agreement between the DMR and all relevant stakeholders, including the mining industry, despite the best efforts of those stakeholders over the preceding year. Unfortunately, the practical experience of the mining industry in implementing the previous Mining Charters - which themselves have contributed to the achievement of the significant transformation that exists across the South African mining industry today - was not taken into account in the development of MCIII.

Anglo American is supportive of the legal course of action being followed by the Chamber of Mines, with the ultimate objective of arriving at a solution that is practically implementable and that preserves and enhances investment in what is a critically important industry for South Africa.

In the absence of new investment, South Africa will fail to deliver the economic growth required to create greater levels of employment and socio-economic upliftment for the benefit of all South Africans. Anglo American is committed to meeting South Africa's transformation objectives and has been a longstanding and major contributor to the country's transformation, pre-dating such regulatory targets.

Anglo American welcomes the decision by the ANC at its recent policy conference that further discussion on MCIII is required with the mining industry in order to ensure that investment and employment levels are not negatively affected. Anglo American awaits clarity on how this discussion process will unfold and will also continue to engage through the Chamber of Mines.

The Board

The following changes to the Board of Anglo American plc have been announced since February 2017:

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 René Médori as finance director. Mr Médori left the Board with effect from that date. Ian Ashby was appointed to the Board as a non-executive director on 25 July 2017.

Following a formal search process led by Sir Philip Hampton, senior independent director, Anglo American announced in June that Stuart Chambers will succeed Sir John Parker as chairman on 1 November 2017. Mr Chambers joins the Board as a non-executive director and chairman designate on 1 September 2017. Sir John Parker will step down from the Board on 31 October 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 2016 year-end are set out in detail in the strategic report section of the Annual Report 2016. The principal risks relate to the following:

·      Commodity prices

·      Political and regulatory

·      Future demand for diamonds

·      Future demand for platinum group metals

·      Minas-Rio

·      Delivery of financial improvement targets

·      Safety

·      Cyber security

·      Corruption

·      Operational performance

·      Strategy execution

·      Renewal of key sales agreements

·      Tailings dam failure

·      Slope wall failure

·      Mineshaft failure

·      Fire and/or explosion.

These risks are reflective of an updated assessment of the Group's risk profile conducted during H1 2017. Some risks are no longer considered principal risks due to changing circumstances or risk mitigation, but others are now considered principal risks because of external developments or other factors associated with those particular risks.

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 2016 is available on the Group's website www.angloamerican.com.
 

Operations review for the six months ended 30 June 2017

DE BEERS

Key performance indicators(1)
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE* (9)
	'000 carats	'000 carats(2)	$/ct(3)	$/ct(4)	$m(5)	$m		$m	$m(7)
De Beers	16,142	18,434	156	63	3,131	786	25%	548	74	11%
Prior period	13,314	17,210	177	65	3,270	766	23%	585	240	7%
Debswana	11,124	-	165	26	-	272	-	256	36	-
Prior period	10,512	-	146	24	-	283	-	270	43	-
Namdeb Holdings	863	-	568	237	-	105	-	92	8	-
Prior period	740	-	519	240	-	131	-	121	19	-
South Africa	2,511	-	133	64	-	127	-	54	48	-
Prior period	1,753	-	114	50	-	150	-	111	83	-
Canada(8)	1,644	-	435	67	-	69	-	25	(28)	-
Prior period	309	-	370	207	-	50	-	18	89	-
Trading	-	-	-	-	-	281	-	278	2	-
Prior period	-	-	-	-	-	186	-	182	1	-
Other(6)	-	-	-	-	-	(68)	-	(157)	8	-
Prior period	-	-	-	-	-	(34)	-	(117)	5	-

 ⁽¹⁾   Prepared on a consolidated accounting basis, except for production, which is stated on a 100% basis except for the Gahcho Kué joint venture in Canada, which is on an attributable 51% basis.

⁽²⁾    Sales volumes on a comparable basis to production were 20.0 million carats (H1 2016: 18.3 million carats). Consolidated sales volumes including Gahcho Kué pre-commercial production volumes were 19.1 million carats (H1 2016: 17.2 million carats).

⁽³⁾  Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The group realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to group 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 $2.9 billion (H1 2016: $3.1 billion).

⁽⁶⁾  Other includes Element Six, downstream, acquisition accounting adjustments, projects and corporate.

⁽⁷⁾  Includes pre-commercial production capitalised operating cash inflows from Gahcho Kué.

⁽⁸⁾  For Canada, price excludes Gahcho Kué contribution, as all profits arising from Gahcho Kué related to pre-commercial production were capitalised. Unit costs include Gahcho Kué contribution following achievement of commercial production on 2 March 2017.

⁽⁹⁾ Underlying EBIT used in the calculation of De Beers' attributable return on capital employed is based on the last 12 months rather than the first six months of performance annualised. This is due to the seasonal sales and underlying EBIT profile of De Beers.

Financial and operational overview

Underlying EBITDA increased by 3% to $786 million (H1 2016: $766 million), primarily attributable to savings resulting from the closure of Snap Lake and a continued efficiency drive across the group. Efficiencies contributed to a 3% decrease in unit costs despite unfavourable exchange rates and an increasing proportion of waste mining costs being expensed rather than capitalised (due to declining strip ratio) at Venetia in South Africa. In addition, underlying EBITDA benefited from a stronger contribution from Element Six.

Total revenue decreased by 4% to $3.1 billion (H1 2016: $3.3 billion), driven by lower rough diamond revenue - as expected, given the benefit of strong midstream restocking in H1 2016. The average realised rough diamond price decreased by 12% to $156/carat (H1 2016: $177/carat), partially offset by a 7% increase in consolidated sales volumes to 18.4 million carats (H1 2016: 17.2 million carats). This reflected stronger demand for lower-value goods in Q1 2017 following a recovery from the initial impact of India's demonetisation programme in late 2016. The lower-value mix was compensated in part by a higher average rough price index, which was 4% higher when compared with H1 2016.

 

Markets

Preliminary consumer demand data for diamond jewellery for the start of 2017 showed continued growth in the US and slight improvements in China in local currency. In India, retailer sentiment improved due to a return to more normal trading conditions following the government's demonetisation programme. Underlying US results reflected the broader changes in consumer behaviour affecting the overall US retail environment, with growth in the independent jewellers' sector contrasting with some weakness from large chains.

Sentiment in the midstream remains positive following a reasonable Q4 2016 retail season, with evidence of Chinese retailers restocking and demonetisation in India having less impact than anticipated. This has supported good demand for De Beers' rough diamonds. Spot polished prices remained broadly flat in H1 2017.

Operating performance

Mining and manufacturing

Rough diamond production increased by 21% to 16.1 million carats (H1 2016: 13.3 million carats), in line with the higher production forecast for 2017, reflecting stable trading conditions as well as the contribution from the ramp-up of Gahcho Kué in Canada.

Debswana increased production by 6% to 11.1 million carats (H1 2016: 10.5 million carats). Production at Orapa increased by 22%, driven by the ramp-up of Plant 1, following its having been on partial care and maintenance in response to trading conditions in late 2015, together with higher grades. This was marginally offset by Jwaneng, where production decreased 6% owing to lower grades. First ore from Jwaneng Cut-8 was extracted and processed in June 2017. Cut-8 will become Jwaneng's main source of ore from 2018.

At Namdeb Holdings, production increased by 17% to 0.9 million carats (H1 2016: 0.7 million carats), mainly due to production recovering following Debmarine Namibia's Mafuta vessel having been on extended planned in-port maintenance in Q2 2016. Debmarine Namibia's new exploration and sampling vessel, the SS Nujoma, was officially inaugurated in June 2017 and is now fully operational.

In South Africa, production increased by 43% to 2.5 million carats (H1 2016: 1.8 million carats) as a consequence of higher grades at Venetia. Construction of the Venetia Underground mine continues to progress, with the underground operation expected to become the mine's principal source of ore from 2023. In June 2017, the annual section 74 export levy exemption for DBCM was renewed until March 2018.

In Canada, production increased to 1.6 million carats (H1 2016: 0.3 million carats) due to the ramping up of Gahcho Kué, which entered commercial production on 2 March 2017. Production at Victor increased by 21% to 0.4 million carats as a result of higher grades. At Snap Lake, flooding of the mine, which commenced in January 2017, is now complete, thereby minimising holding costs while preserving the long-term viability of the orebody.

At Element Six, revenue and earnings improved following a modest upturn in oil and gas industry demand relative to the first half of 2016. This was offset partially by weaker demand for abrasive materials for road and mining applications.

Brands 

In March 2017, De Beers acquired LVMH Moët Hennessy Louis Vuitton's 50% shareholding in De Beers Diamond Jewellers (DBDJ). With full ownership of the business, De Beers has begun to fully integrate the DBDJ brand and network of 29 stores in 16 key consumer markets around the world. DBDJ is a trusted and industry-leading diamond jeweller, with strong brand awareness and diamond expertise, as well as a commitment to acting responsibly.

Forevermark continued to expand its retailer network during the first half of 2017 and is now available in more than 2,080 outlets in 25 markets, an increase of 11% compared with the first half of 2016. In May 2017, Forevermark inscribed its two-millionth diamond, the second million having taken only half the time it took to inscribe the first million.

 

De Beers unveiled its next-generation automated melée screening instrument (AMS2™) in February 2017. The AMS2™ is significantly cheaper, and screens 10 times faster, than its predecessor. In addition, an industry-first synthetic-screening device for stones in set jewellery (SYNTHdetect™) was launched in June 2017.

During 2017, De Beers expects to invest a total of around $140 million in marketing (approximately 20% more than in 2016) through a combination of proprietary and partnership activity across the US, China and India. De Beers has substantially increased its investment in the Diamond Producers Association (DPA) in 2017. The DPA works to maintain and enhance consumer demand for diamonds by promoting the integrity and reputation of diamond jewellery.

Outlook

Macro-economic conditions underpinning consumer demand for polished diamonds globally remain supportive of marginal demand growth in 2017. The extent of global growth, however, will be dependent upon a number of macro-economic factors, including the effect of US and China government policies on exchange-rate movements. Correspondingly, midstream demand for rough diamonds is expected to depend on the strength of different markets' restocking requirements.

Forecast diamond production (on a 100% basis) for 2017 remains unchanged and is expected to be in the range of 31-33 million carats, subject to trading conditions.

 

COPPER

Key performance indicators
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	kt	kt(1)	c/lb	c/lb(2)	$m	$m		$m	$m
Copper	283	259	264	148	1,609	586	36%	303	225	10%
Prior period	291	281	215	136	1,351	424	31%	113	238	6%
Los Bronces	155	144	-	164	767	317	41%	150	95	-
Prior period	161	156	-	152	678	181	27%	(5)	90	-
Collahuasi(3)	109	98	-	122	493	285	58%	184	87	-
Prior period	107	102	-	118	512	231	45%	127	59	-
Other operations	20	17	-	-	349	36	10%	21	43	-
Prior period	23	23	-	-	161	46	29%	25	89	-
Projects and corporate	-	-	-	-	-	(52)	-	(52)	-	-
Prior period	-	-	-	-	-	(34)	-	(34)	-	-

⁽¹⁾    Excludes 37 kt third-party sales.

⁽²⁾    C1 unit cost including by-product credits.

⁽³⁾  44% share of Collahuasi production, sales and financials.

Financial and operating overview

Underlying EBITDA increased by 38% to $586 million, driven by a 23% increase in the average LME copper price and a continued focus on cost-reduction initiatives at Los Bronces and Collahuasi. This was partly offset by around 6,000 tonnes of lost production at El Soldado from the temporary suspension of mining operations, from 18 February 2017 to 28 April 2017, due to initial rejection of the mine plan permit application by the authorities, which contributed to an 8% decline in total sales volumes. In addition, sales volumes were affected by temporary port closures in Chile, owing to adverse weather conditions and heavy swells, as well as by higher arsenic content in copper concentrate from Collahuasi restricting sales to China. Sales are largely expected to recover during H2 2017. At 30 June 2017, 104,700 tonnes of copper were provisionally priced at 269 c/lb.

Markets

	H1 2017	H1 2016
Average market price (c/lb)	261	213
Average realised price (c/lb)	264	215

The average LME copper price increased by 23%, to 261c/lb, compared to the first half of 2016. This price increase was driven by a number factors, including a sense that China's economy had stabilised during 2016, which led to more favourable sentiment towards industrial commodities in the latter half of the year. The copper price also benefited from increased investment-fund flows, in part as a counter to uncertainties in financial markets and as a hedge against Chinese renminbi depreciation. Key copper-consuming sectors in China performed well in H1 2017, resulting in a closer balance between physical supply and demand of refined metal following several years of surpluses. A series of major mine-supply disruptions, including labour stoppages in Chile and a moratorium on copper concentrate exports from Indonesia, have also constrained mine-supply growth this year.

 

Operating performance

At Los Bronces, production declined by 4% to 154,800 tonnes (H1 2016: 160,800 tonnes). The planned move to production from new phases in the mine has led to a change in ore characteristics, resulting in higher-grade, but harder ore, with reduced recoveries, contributing to the reduction in output. In addition, there were two instances of planned maintenance at the processing plants in H1 2017 (versus one in H1 2016). C1 unit cost improvements from productivity and cost-reduction initiatives across the operation were more than offset by the impact of the lower production volumes, inflation and a stronger Chilean peso. This resulted in a net increase in C1 unit costs of 8% to 164 c/lb (H1 2016: 152 c/lb).

At Collahuasi, Anglo American's attributable production increased by 1% to 108,700 tonnes (H1 2016: 107,300 tonnes). Following record concentrate production in 2016, production has continued to benefit from higher ore grades (H1 2017: 1.25% Cu against H1 2016: 1.18% Cu), and by higher overall plant performance, driven by the successful implementation of an improved maintenance strategy over the past three years. This was partially offset by a two-month major planned maintenance at the processing plant. Adverse weather negatively impacted mine operations in Q1 2017, however, the effect on production was mitigated by feeding the plant with higher grade, though higher arsenic, ore from stockpiles. C1 unit cost improvements from productivity and cost-reduction initiatives were more than offset by inflation and the stronger currency combined with arsenic penalties and lower by-product credits. This resulted in a net increase in C1 unit costs of 3% to 122 c/lb (H1 2016: 118 c/lb).

Production at El Soldado decreased by 12% to 19,900 tonnes (H1 2016: 22,600 tonnes), following the temporary suspension of mine operations, which were suspended on 18 February 2017, and restarted on 28 April 2017 following approval of the updated mine plan by the authorities. Production during the mine stoppage was sustained by feeding low-grade stockpile material to the plant; however, the delay in receiving the mine plan permit resulted in around 6,000 tonnes of lost production for the period. As a result, C1 unit costs increased by 16% to 223 c/lb (H1 2016: 192 c/lb).

Operational outlook

Production guidance for 2017 remains unchanged at 570,000-600,000 tonnes.

 

PLATINUM

Key performance indicators
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	koz(1)	koz	$/Pt  oz(2)	$/Pt  oz(3)	$m	$m		$m	$m
Platinum	1,189	1,119	1,843	1,511	2,144	276	13%	112	126	4%
Prior period	1,153	1,221	1,632	1,262	2,041	290	14%	134	125	6%
Mogalakwena	226	204	2,391	1,436	488	179	37%	115	58	-
Prior period	208	214	2,168	1,145	462	190	41%	134	73	-
Amandelbult	208	206	1,776	1,631	367	15	4%	(12)	15	-
Prior period	217	238	1,417	1,195	336	45	13%	19	7	-
Other operations	755	709	-	-	1,289	101	8%	28	53	-
Prior period	728	769	-	-	1,243	76	6%	2	45	-
Projects and corporate	-	-	-	-	-	(19)	-	(19)	-	-
Prior period	-	-	-	-	-	(21)	-	(21)	-	-

⁽¹⁾      Production disclosure reflects own-mine production and purchases of metal in concentrate.

⁽²⁾      Average US$ basket price.

⁽³⁾    Total cash operating costs - includes on-mine, smelting and refining costs only.

Financial and operating overview

Underlying EBITDA decreased by 5% to $276 million (H1 2016: $290 million). Lower sales volumes of platinum, palladium, rhodium and minor metals and the stronger rand were partially offset by stronger prices for palladium and rhodium. US dollar unit costs increased by 20% to $1,511/ounce, owing primarily to the stronger rand (3% increase to unit costs in local currency terms), and the effects of cost inflation, offset by higher volumes and ongoing cost-improvement projects.

Markets

	H1 2017	H1 2016
Average platinum market price ($/oz)	960	959
Average palladium market price ($/oz)	793	546
Average rhodium market price ($/oz)	929	672
Average gold market price ($/oz)	1,238	1,221
US$ realised basket price ($/Pt oz)	1,843	1,632
Rand realised basket price (ZAR/Pt oz)	24,400	25,100

The average platinum price was almost unchanged, at $960/ounce, compared to the first half of 2016. The platinum price continued to be suppressed by the slowdown in the Chinese jewellery sector, and negative sentiment relating to the outlook for light-duty Western European diesel automotive demand, driving a fall in absolute levels of demand. By the end of June 2017, the spot price had fallen to $922/ounce as these factors, as well as the strengthening US dollar, continued to weigh on prices.

In sharp contrast, the average palladium price rallied by 45% to $793/ounce. Palladium demand from the automotive industry continues to grow, with strong year to date sales in most markets, furthering the market deficit for palladium. At the end of June 2017, the spot price for palladium had reached $841/ounce. The rhodium spot price also strengthened year on year, increasing by 63% to $1,035/ounce, based on investor interest and industrial consumer demand.

Operating performance

During the period under review, total platinum production (metal in concentrate) including both own‑mined production and purchase of concentrate, increased by 3% to 1,189,100 ounces (H1 2016: 1,152,700 ounces).
 

Production from managed mines

Production from managed mines decreased by 27% to 549,400 ounces, primarily due to the sale of Rustenburg in November 2016, which has been reported subsequently as purchase of concentrate from third parties. Excluding Rustenburg, own-mined production increased by 2%.

At Mogalakwena, mine production increased by 9% to a record 225,800 ounces (H1 2016: 207,800 ounces), including 16,200 ounces (H1 2016: 15,400 ounces) processed at the Baobab concentrator. Production benefited from an increase in recoveries and a 1% improvement in grade to 3.07 grams/tonne (H1 2016: 3.04 grams/tonne), as well as additional tonnes milled in all three plants.

Amandelbult mine output decreased by 4% to 207,700 ounces (H1 2016: 217,100 ounces). The decline happened in Q1 2017, when excessive rainfall affected production from the open-pit operations. In addition, the rainfall had a bearing on the material flow of the UG2 feed in the chutes, which led to backlogs in the concentrators. Minor industrial action also negatively impacted production, resulting in three days' lost production. The mine recovered in Q2 2017 and production was 4% higher than in Q2 2016 (and 14% higher than in Q1 2017).

Production from Unki mine in Zimbabwe increased by 5% to a new record of 38,400 ounces (H1 2016: 36,400 ounces). This was driven by a 3% increase in tonnes milled and a 2% increase in grade to 3.48 grams/tonne through better mining height control, which reduced the amount of waste mined resulting in more higher-grade ore being delivered to the concentrator.

Union mine increased platinum production by 3% to 77,500 ounces (H1 2016: 75,500 ounces) due to improved crew efficiencies, in line with the optimised mine plan, despite a reduction in grade in Q2 2017 through mining less material from the Merensky reef. The sale of Union to Siyanda Resources Proprietary Limited was announced on 15 February 2017 and is expected to be completed during H2 2017, subject to regulatory approval, following which production from Union will be reported as purchase of concentrate from third parties.

Joint venture production

Platinum output from the Mototolo, Modikwa and Kroondal joint ventures, inclusive of both Anglo American share and purchased production, decreased by 3% to 246,600 ounces (H1 2016: 255,300 ounces). At Modikwa, production increased by 3% to 57,800 ounces (H1 2016: 56,000 ounces) following an improvement in labour productivity. Mototolo's production decreased by 7% to 57,800 ounces (H1 2016: 62,000 ounces) due to mining of lower grades, while output from Kroondal declined by 5% to 131,000 ounces (H1 2016: 137,300 ounces) as lower grades were encountered, exacerbated by a two-day illegal strike at two of its shafts.

Purchase of concentrate from associates

BRPM's production increased by 8% to 99,300 ounces (H1 2016: 91,600 ounces), in line with expectations, due to the ramping up of certain projects. At Bokoni, output declined to 37,900 ounces (H1 2016: 41,300 ounces) as a result of poor ground conditions and from time lost from a Section 54 stoppage related to a fatal incident.

Anglo American Platinum has notified Atlatsa Resources (Atlatsa) that it will cease to fund its own, and Atlatsa's share of Bokoni mine's operating losses from 31 July 2017. On 21 July 2017 Atlatsa announced that it has commenced the process to place Bokoni mine on care and maintenance.

Purchase of concentrate from third parties

Third-party purchase of concentrate increased significantly to 255,900 ounces (H1 2016: 9,500 ounces) with production from Rustenburg being purchased since November 2016 when the operation was sold to Sibanye. For H1 2017 purchase of concentrate from Rustenburg amounted to 242,600 ounces.

Refined production

Refined platinum production increased by 10% to 1,105,600 ounces (H1 2016: 1,008,400 ounces), output in H1 2016 having been affected materially by a Section 54 safety stoppage at the Precious Metals Refinery.

 

Following the Waterval smelter run-out in Q3 2016, the Number 1 furnace was successfully rebuilt in Q4 and is now running at steady state. The Number 2 furnace underwent planned maintenance and has successfully ramped up to steady state. The backlog in processing pipeline material of 65,000 platinum ounces following the run-out is expected to be made up during H2 2017.

A high-pressure water leak at the Converter Plant (ACP) impacted one converter plant (Phase A) of the operation on 4 June 2017. The second converter plant (Phase B) which was on planned maintenance, was heated up and returned to steady state production ten days later. The time required to reheat Phase B created a backlog of material, deferring circa 90,000 ounces of refined production.

Platinum sales volumes decreased by 8% to 1,119,300 platinum ounces (H1 2016: 1,221,200 ounces), with H1 2016 having benefited from a drawdown in refined stock.

Operational outlook

Platinum production guidance (metal in concentrate) remains unchanged at 2.35 - 2.4 million ounces for 2017.

 

IRON ORE AND MANGANESE

Key performance indicators
	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	-	-	-	-	2,814	1,167	41%	976	73	22%
Prior period	-	-	-	-	1,433	512	36%	390	221	7%
Kumba Iron Ore	21.9	21.2	71	32	1,627	700	43%	586	81	49%
Prior period	17.8	20.2	55	27	1,185	484	41%	387	84	37%
Iron Ore Brazil	8.7	8.6	66	29	738	253	34%	201	(8)(5)	8%
Prior period	6.8	6.9	44	32	-	(9)	-	(10)	137	(1)%
Samancor(4)	1.7	1.7	-	-	449	242	54%	217	-	116%
Prior period	1.6	1.8	-	-	248	62	25%	38	-	25%
Projects and corporate	-	-	-	-	-	(28)	-	(28)	-	-
Prior period	-	-	-	-	-	(25)	-	(25)	-	-

⁽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 Açu) (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⁾    $47 million of capital expenditure offset by capitalised cash inflows of $31 million relating to working capital in place at December 2016, in addition to a $25 million inflow relating to capex hedges.

Financial and operating overview

Kumba

Underlying EBITDA improved by 45% to $700 million (H1 2016: $484 million), mainly due to a 29% increase in the average realised FOB export iron ore price from $55/tonne to $71/tonne. FOB unit costs increased by 19% to $32/tonne (H1 2016: $27/tonne), primarily because of a $3/tonne impact from a stronger South African rand (rand FOB unit costs increased by 3%) and cost inflation. This was partially offset by productivity gains in mining and processing operations, which resulted in a 23% rise in production volumes. The average CFR break-even price achieved was $9/tonne higher at $43/tonne (H1 2016: $34/tonne), on the back of higher freight rates, the stronger rand and a lower premium for lump product.

Reflecting the higher production volumes, export sales volumes increased by 8% to 19.5 Mt (H1 2016: 18.1 Mt). Total finished product stock rose to 4.4 Mt (2016: 3.5 Mt) owing to higher production as well as to sales volumes being deferred to H2 2017 following unfavourable weather conditions at Saldanha port in June 2017.

Iron Ore Brazil

Underlying EBITDA totalled $253 million, a significant increase from H1 2016 ($9 million loss), which reflects the operation's continued ramp-up to its current operating capacity and the end of the capitalisation of operating results in January 2017. The average FOB realised price was $66/wet metric tonne (equivalent to $72/dry metric tonne), $22/tonne, or 50% higher, than that achieved in H1 2016. FOB unit costs of $29/tonne were $3/tonne lower than the prior year as a result of higher production volumes, together with cost-reduction initiatives, partly offset by the strengthening of the real.

The average CFR break-even price achieved was $8/tonne lower at $43/tonne (H1 2016: $51/tonne) due to lower unit costs and higher quality premiums offset by higher freight costs.

 

Samancor

Underlying EBITDA increased by $180 million to $242 million (H1 2016: $62 million), driven mainly by significantly higher realised manganese ore and alloy prices, a 4% increase in ore sales, and lower costs, which were partly attributable to the restructuring of the South African manganese operations during Q1 2016.

Markets

Iron ore

	H1 2017	H1 2016
Average market price (IODEX 62% Fe CFR China - $/tonne)	74	52
Average market price (MB 66% Fe Concentrate CFR - $/tonne)	88	58
Average realised price (Kumba export - $/tonne) (FOB Saldanha)(1)	71	55
Average realised price (Minas-Rio - $/tonne) (FOB wet basis)(2)	66	44

⁽¹⁾    Kumba's outperformance over the IODEX (Platts) 62% Fe CFR China index is primarily representative of the superior iron (Fe) content and the relatively high proportion (approximately 64%) of lump in the overall product portfolio.

⁽²⁾    Iron Ore Brazil produces higher-grade products than the reference product used for the IODEX 62% Fe index. The pricing of Iron Ore Brazil's products reflects the higher Fe content and lower gangue of those products compared to the IODEX 62% reference. IODEX 62% is referred to for comparison purposes only.

The IODEX iron ore price averaged $74/tonne in H1 2017, 42% higher than in H1 2016. Despite a contraction in China's monetary policy, economic activity remained buoyant, with year-on-year industrial production and fixed-asset investment increasing by an estimated 6.7% and 8.5%, respectively, over H1 2016. This, together with capacity closures in the country, resulted in a 60% year-on-year increase in China's domestic steel prices. Improved margins led to Chinese mills ramping up capacity-utilisation levels; steel production rose by 4.5% compared with the corresponding period in 2016, supporting demand for high-grade ores, with the MB66 index gaining 52% year on year. Rising supply, however, is a key headwind for iron ore markets. By the end of H1 2017, iron ore stocks at key Chinese ports had reached a record high of 140 Mt, and price-sensitive iron ore suppliers in both domestic and seaborne markets are operating at seasonally stronger rates.

Manganese

During H1 the average manganese ore price (BM 44% CIF China) increased by 79% to $5.52/dmtu from H1 2016. The price increase was mainly driven by a lift in Chinese steel production and limited supply in the market as a result of production cuts in late 2015 and early 2016.

Operating performance

Kumba

Sishen's production increased by 35% to 15.6 Mt (H1 2016: 11.5 Mt) following improvements in mining productivity gained from fleet efficiencies, and higher plant yields. Waste mined increased as planned to 77 Mt (H1 2016: 65 Mt).

Kolomela's output was 7% higher, at 6.3 Mt, (H1 2016: 5.9 Mt), reflecting productivity improvements. Waste mining increased by 26% from 20 Mt to 25 Mt, supporting higher production levels.

The roll-out of the Operating Model is continuing as scheduled at both Sishen and Kolomela mines, with the Sishen truck maintenance and Kolomela heavy moving vehicle sections achieving a 'go-live' phase in June 2017. Kolomela continues to achieve increased throughput levels attained after the process plant go-live phase in 2016.

The Dingleton project is substantially complete, with a few households still to be relocated. Negotiations with the remaining households are continuing.

Iron Ore Brazil

Iron ore production from Minas-Rio increased to 8.7 Mt (wet basis) during H1 2017, a 27% increase compared to H1 2016, as the operation continued to ramp up to its current operating capacity.

 

Samancor

Manganese ore output of 1.7 Mt (attributable basis) represented a 6% increase (H1 2016: 1.6 Mt). Production from the Australian operations was marginally ahead of prior year despite ore-feed constraints arising from heavy rainfall. The South African operations increased production by 16%, taking advantage of stronger demand and pricing.

Production of manganese alloys increased by 15% to 70,800 tonnes (attributable basis). This was due mainly to improved power availability at the Australian operations. In South Africa, manganese alloy production continues to utilise only one of the operation's four furnaces.

Operational outlook

Kumba

Sishen is expected to produce between 28-29 Mt of product (previous guidance: 27-28 Mt) and mine 155‑165 Mt of waste (previous guidance: 150-160 Mt) in 2017.

Kolomela's production guidance remains unchanged at 13-14 Mt for 2017. Waste removal is expected to be around 50-55 Mt in support of the increased annual output.

Full year production guidance for 2017 is between 41-43 Mt (previous guidance: 40-42 Mt).

Iron Ore Brazil

The focus remains on maintaining operational stability and obtaining, in H2 2018, the Step 3 licences required for the operation to access the full range of run-of-mine grades and achieve its nameplate capacity of 26.5 Mt (wet basis). Production guidance for full year 2017 is unchanged at 16-18 Mt.

Samancor

Australian manganese ore production guidance of 2.1 Mwmt for 2017 remains unchanged, albeit with an increased proportion of lower-quality ore in the product mix. This fines product has a manganese content of approximately 40%, which leads to both grade and product type discounts when referenced to the high-grade 44% manganese lump ore index. South African manganese ore production will remain configured for an optimised annualised production rate of 2.9 Mwmt (100% basis), although the business will continue to act opportunistically when market fundamentals are supportive.

Legal

Sishen consolidated mining right granted

An application, in terms of Section 102 of the Mineral and Petroleum Resources Development Act No 28 of 2002, to extend Sishen mine's mining right by the inclusion of the adjacent Sishen Iron Ore Company Proprietary Limited (SIOC) Prospecting Rights (including Dingleton) and other properties, was lodged on 1 July 2016. This application is required by Sishen to expand its current mining operations within the adjacent Dingleton area. The official grant letter was received from the DMR on 6 July 2017 and the process to amend the Sishen mining right, will now proceed. Mining operations will only commence once the required environmental authorisation, in terms of the National Environmental Management Act 1998 (Act 107 of 1998), has been approved, which is expected soon. 
 

COAL

Key performance indicators
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	Mt(1)	Mt(2)	$/t(3)	$/t(4)	$m	$m		$m	$m
Coal	40.5	40.3	-	-	3,403	1,382	41%	1,120	221	63%
Prior period	45.7	46.0	-	-	2,029	389	19%	160	274	9%
Metallurgical Coal	10.0	10.0	193	64	1,775	943	53%	781	154	81%
Prior period	15.4	15.7	77	50	920	200	22%	60	252	6%
South Africa	25.3	24.9	72	41	1,242	281	23%	225	67	51%
Prior period	25.4	25.1	50	33	867	162	19%	116	22	25%
Cerrejón	5.2	5.4	71	31	386	183	47%	139	-	34%
Prior period	4.9	5.2	47	30	242	51	21%	8	-	3%
Projects and corporate	-	-	-	-	-	(25)	-	(25)	-	-
Prior period	-	-	-	-	-	(24)	-	(24)	-	-

⁽¹⁾    Production volumes are saleable tonnes. South African production volume includes Eskom Tied Operations volumes of 12.0 Mt (H1 2016: 11.4 Mt). Metallurgical Coal production volumes includes thermal coal production volumes of 0.8 Mt (H1 2016: 5.4 Mt)

⁽²⁾      South African sales volume includes Eskom Tied Operations volumes of 12.0 Mt (H1 2016: 11.4 Mt), but excludes non-equity traded sales volumes of 3.4 Mt (H1 2016: 3.2 Mt).

⁽³⁾    Metallurgical Coal 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. Metallurgical Coal excludes study costs and Callide. South Africa unit cost is for the export operations.

Financial and operating overview

Metallurgical Coal

Underlying EBITDA increased to $943 million, due to a circa 150% increase in the metallurgical coal realised price, the ramp up of Grosvenor and increased production from Moranbah, partly offset by lower production, due to the sale of Foxleigh in H2 2016, and sales, primarily at Capcoal, being delayed into H2 2017 as a result of rail outages following Cyclone Debbie. 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 producer), the business now produces a greater proportion of higher value hard coking coal (80% of total production, compared to 48% in H1 2016).

The divestment of Dartbrook was announced on 30 May 2017, and the divestment of Drayton is expected to complete during H2 2017.

South Africa

Underlying EBITDA increased by 73% to $281 million. This was mainly attributable to a 46% increase in the export thermal coal price. US dollar unit costs at Trade Operations increased by 24% ($8/tonne) to $41/tonne, of which $5/tonne related to a stronger rand, and $3/tonne to cost-inflation pressures in South Africa and lower production associated with the planned ramp-down of the Eskom pit at Khwezela.

Total export saleable volumes were in line with H1 2016. Total trade mine production of 11.4 Mt, however, was 3% lower as a result of the planned closure of the Eskom pit at Khwezela.

The sale of the Eskom-tied operating mines (New Vaal, New Denmark and Kriel) to Seriti Resources was announced on 10 April 2017 and is expected to complete during H2 2017.

Cerrejón

Underlying EBITDA increased to $183 million (H1 2016: $51 million), due mainly to stronger thermal prices, increased volumes and lower costs following planned removal of the highest-cost capacity, and to the sustained benefits of significant cost-reduction programmes implemented in the prior two years.

Markets

Metallurgical coal

	H1 2017	H1 2016
Average market price for premium low-volatility hard coking coal ($/tonne)	179	84
Average market price for premium low-volatility PCI ($/tonne)	117	70
Average realised price for premium low-volatility hard coking coal ($/tonne)	195	79
Average realised price for PCI ($/tonne)	124	68

Metallurgical coal prices were significantly higher compared to H1 2016 owing to major supply constraints in China following domestic production restrictions in mid-2016, and the impact of Cyclone Debbie in Australia in March 2017 on rail availability. In addition, prices were helped by strong demand from Chinese and other global pig iron producers.

The Q1 2017 quarterly settlement price was $285/tonne for premium hard coking coal, compared to $81/tonne for Q1 2016. High price volatility has delayed settlement for Q2 pricing, with subsequent agreement to use an average of spot indices from that quarter for premium hard coking coal. Semi-soft coking and PCI are still being settled on a quarterly negotiated basis.

Thermal coal

	H1 2017	H1 2016
Average market price ($/t, FOB Australia)(1)	81	51
Average market price ($/t, FOB South Africa)(1)	79	54
Average market price ($/t, FOB Colombia)(1)	74	44
Average realised price - Export Australia ($/tonne, FOB)	87	47
Average realised price - Export South Africa ($/tonne, FOB)	72	50
Average realised price - Domestic South Africa ($/tonne)	20	16
Average realised price - Colombia ($/tonne, FOB)	71	47

⁽¹⁾ Thermal coal price and realised price will differ due to timing and quality differences.

The average FOB Australia price (6,000kcal/kg FOB) increased by 59% to $81/tonne compared to H1 2016. This price increase was driven mainly by higher import demand from China following domestic production restrictions. On the supply side, most of the major producing regions have been consistent in their volumes compared with H1 2016.

Operating performance

Metallurgical Coal

Production from continuing operations of 10.0 Mt is on par with H1 2016. The estimated impact of Cyclone Debbie on rail availability is the deferral of 0.6 Mt of saleable production into H2 2017. This has been offset by an increase in saleable production of 0.3 Mt at Moranbah North and 0.4 Mt at Grosvenor.

Grosvenor production ramp up continues to be impacted by geological issues which remain a key business focus in order to improve operational performance in the future.

 

South Africa

Export primary production of 8.1 Mt was broadly in line with H1 2016, with continued productivity improvements at underground operations and on-going plant innovations at Khwezela and Goedehoop, offset by temporary operational challenges at Khwezela associated with the integration of the Kleinkopje and Landau mines. Total production from trade mines decreased by 0.3 Mt to 11.4 Mt, being affected by the planned ramp-down of the Eskom pit at Khwezela as it reaches its end of life. 

Production from Eskom-tied operations increased 6% by 0.6 Mt, with higher production at New Denmark due to the longwall move in Q2 2016. The sale of the Eskom-tied operating mines to Seriti Resources was announced on 10 April 2017, and is expected to complete by the end of 2017.

Isibonelo production was 0.3 Mt lower than in H1 2016, with production hampered following a dragline fire in November 2016.

Cerrejón

Anglo American's attributable output from its 33.3% shareholding in Cerrejón increased by 6% to 5.2 Mt due to higher coal recovery.

Operational outlook

Metallurgical Coal

Full year production guidance for export metallurgical coal remains unchanged at 19-21 Mt, but is expected to be at the lower end of this range owing to the geological issues at Grosvenor.

Export thermal coal

Full year production guidance for export thermal coal from South Africa and Cerrejón is unchanged at 29‑31 Mt, but at the low end of the range primarily due to the operational challenges at Khwezela.

NICKEL

Key performance indicators
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	t	t	c/lb	c/lb(1)	$m	$m(2)		$m(2)	$m
Nickel	21,200	20,800	442	363	203	15	7%	(25)	7	(3)%
Prior period	22,300	21,900	387	323	187	24	13%	(12)	14	(1)%

⁽¹⁾  C1 cash costs (c/lb).

⁽²⁾    Nickel segment includes $4 million projects and corporate costs (H1 2016: $4 million).

Financial and operating overview

Underlying EBITDA decreased by $9 million to $15 million (H1 2016: $24 million), reflecting an unfavourable exchange rate and cost inflation, partly offset by a higher nickel price.

US dollar unit costs increased by 12% to 363 c/lb (H1 2016: 323 c/lb) as adverse exchange rates, cost inflation, and lower sales volumes were only partially offset by other items, including lower energy costs.

Markets

	H1 2017	H1 2016
Average market price(1) (c/lb)	443	393
Average realised price(2) (c/lb)	442	387

⁽¹⁾    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.

⁽²⁾    Differences between market prices and realised prices are largely due to variances between the LME and ferronickel price.

The average LME nickel price increased by 13% to 443 c/Ib compared to the first half of 2016.

Nickel demand improved strongly during 2016 and the market moved into deficit, with this momentum continuing into H1 2017. This led to a reduction in global nickel inventories, which decreased by 14% during the 12 months ended 30 June 2017. Owing to a shortage of nickel-iron units (ferronickel, nickel pig iron and stainless steel scrap), ferronickel traded at a premium to the LME nickel price.

Operating performance

Nickel output decreased by 5% to 21,200 tonnes (H1 2016: 22,300 tonnes) as instabilities at both smelting operations negatively affected Barro Alto's production performance in February. The root causes were addressed and the operations returned to stable performance in the second quarter. Codemin's production of metal was lower than the previous year's by approximately 200 tonnes.

Operational outlook

Production guidance for 2017 is unchanged at 43,000-45,000 tonnes.

 

CORPORATE AND OTHER

Key performance indicators
	Revenue	Underlying EBITDA*	Underlying EBIT*	Capex*
	$m	$m	$m	$m
Segment	2	(96)	(103)	5
Prior period	306	45	12	1
Niobium and Phosphates	-	-	-	-
Prior period	304	85	60	(1)
Exploration	-	(43)	(43)	-
Prior period	-	(53)	(53)	-
Corporate activities and unallocated costs	2	(53)	(60)	5
Prior period	2	13	5	2

Financial and operating overview

Corporate and other reported an underlying EBITDA loss of $96 million (H1 2016: $45 million gain).

Exploration

Exploration expenditure decreased to $43 million (H1 2016: $53 million), reflecting a general reduction across all commodities. The decreases were mainly attributable to an overall reduction in drilling activities.

Niobium and Phosphates

The sale of the niobium and phosphates business to China Molybdenum Co Ltd. was completed on 30 September 2016.

Corporate activities and unallocated costs

Underlying EBITDA amounted to a $53 million loss (H1 2016: $13 million gain), largely arising in the Group's self-insurance entity, with lower premium income and higher net claims and settlements compared to H1 2016.

   

For further information, please contact:

Media		Investors
UK James Wyatt-Tilby [e-mail] Tel: [phone]		UK Paul Galloway [e-mail] Tel: [phone]
Marcelo Esquivel [e-mail] Tel: [phone]		Trevor Dyer [e-mail] Tel: [phone]
South Africa Pranill Ramchander [e-mail] Tel: [phone] Ann Farndell [e-mail] Tel: [phone]		Sheena Jethwa [e-mail] Tel: [phone]

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 De Beers), 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 27 July 2017, 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

 

END

 

 

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