Anglo American Preliminary Results 2019

RNS Number : 5279D

Anglo American PLC

20 February 2020

 

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YEAR END FINANCIAL REPORT

for the year ended 31 December 2019

20 February 2020

Anglo American Preliminary Results 2019

Continuing delivery underpins 9% increase in underlying EBITDA to $10.0 billion

Mark Cutifani, Chief Executive of Anglo American , said: "We continue building on the fundamental structural and operational improvements we have embedded across our business. The result is founded on high quality, low cost, world class assets. We have also benefited from product and market diversification, with strong precious metals and iron ore prices offsetting weakness in diamonds and coal, generating a 9% increase in underlying EBITDA to $10.0 billion, a 19% ROCE and a Total Shareholder Return of 31% for the year.

"We continue to invest in high quality, value-adding growth projects across the business, including in copper, diamonds and metallurgical coal, which will drive our volume, margin and cash flow growth over the medium and longer term. Combined with our share buyback of $0.8 billion during the second half of the year, net debt at year end was less than 0.5x EBITDA and we continue to maintain a strong balance sheet through the cycle.

"The safety of our people is always front of mind. It is tragic that we continue to experience serious safety incidents, in which four of our employees died at managed operations in 2019. And while 2019 was our best safety performance in our history, our progress strengthens our determination to deliver on our commitment to zero harm. Across the business, we recorded another all-time low injury frequency rate, representing a 17% improvement compared to 2018 and a 59% improvement over the last six years.

 "At the heart of our operational performance is the improving stability and predictability provided by our Operating Model. We are also starting to see considerable further efficiency and productivity benefits through our P101 programme to deliver additional value from our equipment, our key processes, and our FutureSmart Mining™ approach to technology, digitalisation and sustainability. Compared to 2012, our productivity⁽¹⁾ has more than doubled and unit costs have decreased by 29% (nominal basis), driving a 12 point increase in Mining EBITDA margin⁽²⁾ to 42%.

"Underlying cost and volume benefits were $0.4 billion ‒ adjusted to $0.1 billion on a net basis to reflect external factors, including the drought in Chile and Eskom power disruptions in South Africa. Since 2012, we have delivered $4.7 billion of annual underlying EBITDA improvement and have the plans in place to add $3-4 billion of annual underlying EBITDA improvement by 2022, relative to 2017.

"Consistent delivery of underlying improvements continues to enhance Anglo American's competitive position. We have transformed our operations and delivered significant financial uplift, while building our broad sustainability performance. Guided by our Purpose, we are continuing to reposition our business responsibly for a cleaner, greener, more sustainable world."

Financial highlights - year ended 31 December 2019

•   Generated underlying EBITDA* of $10.0 billion, a 9% increase, and $2.3 billion of attributable free cash flow*

•   Delivered profit attributable to equity shareholders of $3.5 billion, in line with prior year

•   Net debt* increased to $4.6 billion, equal to <0.5x underlying EBITDA, due to investment in growth opportunities

•   Proposed final dividend of $0.47 per share, consistent with our 40% payout policy

•   Previously announced share buyback of up to $1 billion: $0.8 billion completed by year end

Year ended	31 December 2019		31 December 2018		Change
US$ million, unless otherwise stated
Revenue	29,870		27,610		8	%
Underlying EBITDA*	10,006		9,161		9	%
Mining EBITDA margin*	42	%	42	%
Attributable free cash flow*	2,324		3,157		(26	)%
Profit attributable to equity shareholders of the Company	3,547		3,549		0	%
Underlying earnings per share* ($)	2.75		2.55		8	%
Earnings per share ($)	2.81		2.80		0	%
Dividend per share ($)	1.09		1.00
Group attributable ROCE*	19	%	19	%

Terms 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 68.

SUSTAINABILITY PERFORMANCE

Safety

The safety of our people is always front of mind. Making sure every employee returns home at the end of each day, better for having worked at Anglo American, is our vision for safety and health across the business. In this context, it is tragic that we continue to experience serious safety incidents, in which four of our employees died in work-related incidents at managed operations in 2019, in our Copper and Coal businesses.

Taking into account a number of other incidents, including two off-site commuting road accidents, we lost a total of 18 colleagues in 2019. These losses highlight how important it is for us to continue to improve the safety of everyone associated with Anglo American, including our contractors, and influencing safety good practice beyond the mine gate, including at our suppliers and non-managed joint arrangements. Each of these tragic events is devastating and we extend our deepest sympathies to our colleagues' families, friends and co-workers.

Every individual who works at Anglo American must be unconditional about safety, no ifs and no buts. The Elimination of Fatalities Taskforce that we launched during 2018 has now covered all our managed operations, interrogating the key reasons behind fatal incidents, and is now prioritising actions to better identify and manage critical hazards to remove and reduce potential for serious and fatal incidents.

Across safety as a whole, we recorded another all-time low total recordable case frequency rate, representing a 17% improvement since 2018 and a 59% improvement at our managed operations over the last six years. By being unconditional about safety, major safety incidents will be consigned to history, as we have shown to be possible in the majority of our working locations. The delivery of zero harm is about delivering this type of performance at every location and with every individual in the business. And while 2019 was our best overall safety performance in our history, our progress strengthens our determination to deliver on that clear commitment to zero harm.

Environment

Our environmental performance improved significantly in 2019. We recorded one Level 3 environmental incident (2018: one Level 4 and five Level 3), at the Unki PGMs mine in Zimbabwe, relating to discharge into a river. Appropriate and timely containment and remedial actions were taken.

Our sustainability goals include our commitment to be a leader in environmental stewardship. By 2030, we aim to: reduce GHG emissions by 30% against a 2016 baseline and improve energy efficiency by 30%; achieve a 50% net reduction in freshwater abstraction; and deliver net-positive impacts in biodiversity wherever we operate.

Sustainable mining

Anglo American has a long track record as a leader in sustainable, responsible mining. Our far-reaching Sustainable Mining Plan, launched in 2018 as part of the FutureSmart Mining™ programme, commits us to a series of ambitious medium and longer term goals. These relate to three major areas of sustainability aligned to the UN's 2030 Sustainable Development Goals: trusted corporate leader (i.e. advocating for the highest standards of governance to drive transparency and trust in mining and mined products); healthy environment; and thriving communities. While our environmental goals will rely on many of the technologies we are deploying, we are also thinking innovatively to create regional ecosystems of sustainable economic activity, collaborating with appropriate development partners.

⁽¹⁾  Productivity indexed to 2012 benchmark.

⁽²⁾  The Mining EBITDA margin is derived from the Group's Underlying EBITDA as a percentage of Group Revenue, adjusted to exclude certain items to better reflect the performance of the Group's mining business. The Mining EBITDA margin reflects Debswana accounting treatment as a 50/50 joint operation, excludes third-party sales, purchases and trading and excludes Platinum Group Metals' purchase of concentrate.

Operational and financial review of Group results for the year ended 31 December 2019

OPERATIONAL PERFORMANCE

Production increased by 1% on a copper equivalent basis, driven by increases at Metallurgical Coal and Minas-Rio (iron ore), which restarted operations in December 2018. These increases were partly offset by a combination of lower production at Los Bronces (copper) owing to restricted water availability due to drought conditions and De Beers (diamonds), where production was reduced in line with demand. Production was also affected by the impact of Eskom power outages on some of our South African operations.

De Beers' rough diamond production decreased by 13% to 30.8 million carats (2018: 35.3 million carats), primarily driven by a reduction in South Africa as Venetia transitions from open pit to underground and in response to demand.

Copper production decreased by 5% to 638,000 tonnes (2018: 668,300 tonnes), with higher planned grades at Los Bronces offset by production losses owing to lower water availability due to drought conditions. Attributable production from Collahuasi increased by 1% to 248,800 tonnes (2018: 246,000 tonnes), despite planned lower grades, owing to a solid plant performance.

At our PGMs business, total platinum and palladium production (metal in concentrate) increased by 1% to 2,050,600 ounces (2018: 2,020,500 ounces), and 1,385,900 ounces (2018: 1,379,000 ounces) respectively. The increase in production was primarily due to higher grades and throughput at Mogalakwena and the continued ramp-up of the Dishaba Lower section at Amandelbult, partially offset by Eskom power disruptions.

At Kumba, iron ore production decreased by 2% to 42.4 Mt (2018: 43.1 Mt), mainly due to the infrastructure upgrade of Kolomela's dense media separation (DMS) plant, with improved plant performance at Sishen in the second half of the year compensating for operational challenges earlier in the year.

Following the restart of operations at Minas-Rio in December 2018, iron ore production for the year was 23.1 Mt (2018: 3.4 Mt), reflecting the optimisation work undertaken while operations were suspended, the benefit from P101 productivity initiatives and access to the Step 3 mining area higher grade ore.

Metallurgical coal production increased by 5% to 22.9 Mt (2018: 21.8 Mt), driven by a 1.0 Mt increase at Grosvenor and a strong performance at Dawson, which offset the impact of an extended longwall move at Moranbah.

At Thermal Coal, total export production decreased by 8% to 26.4 Mt (2018: 28.6 Mt), while Nickel's production increased by 1% to 42,600 tonnes (2018: 42,300 tonnes) and manganese ore production decreased by 3% to 3.5 Mt (2018: 3.6 Mt).

Group copper equivalent unit costs were 6% lower in US dollar terms, largely due to favourable exchange rates and the benefit of the strong performance at Minas-Rio, partially offset by lower production at De Beers and Kumba.

FINANCIAL PERFORMANCE

Anglo American's profit attributable to equity shareholders was in line with the prior year at $3.5 billion (2018: $3.5 billion). Underlying earnings were $3.5 billion (2018: $3.2 billion).

UNDERLYING EBITDA*

Group underlying EBITDA increased by 9% to $10.0 billion (2018: $9.2 billion). The Group Mining EBITDA margin* was in line with the prior year at 42%, reflecting the strong performance at Minas-Rio, offset by diamond midstream weakness.  A reconciliation of 'Profit before net finance costs and tax', the closest equivalent IFRS measure to underlying EBITDA, is provided within note 3 to the Condensed financial statements.

Underlying EBITDA* by segment

	Year ended		Year ended
$ million	31 December 2019		31 December 2018
De Beers	558		1,245
Copper	1,618		1,856
PGMs	2,000		1,062
Iron Ore	3,407		1,177
Coal	1,832		3,196
Nickel and Manganese	634		844
Corporate and other	(43	)	(219	)
Total	10,006		9,161

Underlying EBITDA* reconciliation for the year ended 31 December 2018 to year ended 31 December 2019

The reconciliation of underlying EBITDA from $9.2 billion in the year ended 31 December 2018, to $10.0 billion in the year ended 31 December 2019, shows the controllable factors (e.g. cost and volume), as well as those outside of management control (e.g. price, foreign exchange and inflation), that drive the Group's performance.

$ billion
FY 2018 underlying EBITDA*	9.2
Price	0.4
Diamond midstream weakness	(0.5	)
Foreign exchange	0.8
Inflation	(0.5	)
Net cost and volume	0.1
Minas-Rio	0.6
Other	(0.1	)
FY 2019 underlying EBITDA*	10.0

Price

Average market prices for the Group's basket of commodities and products increased by 1%, contributing $0.4 billion of improvement to underlying EBITDA. The average realised FOB iron ore price for Kumba's iron ore increased by 35%, outperforming the market index owing to its higher iron content and relatively high proportion of lump ore. The price achieved for the PGMs basket increased by 27%, largely due to palladium and rhodium, which recorded increases of 48% and 73% respectively. The positive impact was partly offset by decreases in the realised prices for export thermal coal (30%), metallurgical coal (12%), and copper (4%).

Diamond midstream weakness

In 2019, overall demand for rough diamonds was lower owing to challenges in the midstream, as a result of closure of some US 'bricks and mortar' retail outlets and an increase in online purchasing. The negative price and volume impact in the year was $0.5 billion, compared with 2018.

Foreign exchange

The positive foreign exchange impact on underlying EBITDA of $0.8 billion was largely due to the weaker South African rand, Australian dollar and Brazilian real.

Inflation

The Group's weighted average CPI for the year was 3%, compared with 4% in 2018. This was principally influenced by a decrease in inflation in South Africa. The impact of inflation on costs reduced underlying EBITDA by $0.5 billion.

Net cost and volume

Underlying cost and volume benefits were $0.4 billion. These were offset, however, by external headwinds, including the drought in Chile restricting copper production, lower sales at Kumba owing to lower domestic sales and logistics challenges, and the impact of Eskom power outages on production at PGMs. The cost and volume benefit, net of these headwinds, was $0.1 billion.

The underlying $0.4 billion cost and volume benefits were driven by a strong performance at Minas-Rio, with production significantly outperforming 2017 levels, and significant cost saving initiatives at Copper. This was partly offset by expected lower production volumes at De Beers, as Venetia transitions from open pit to underground.

Minas-Rio

The increase of $0.6 billion in the Group's underlying EBITDA reflects the recovery to 2017 performance levels from the impact of the suspension of operations at Minas-Rio for nine months in 2018.

Other

The $0.1 billion decrease in underlying EBITDA was driven by lower volumes in response to weaker demand at the Group's associate, Cerrejón, as well as Voorspoed and Victor mines (De Beers) ceasing operations. Also included are charges to the income statement in respect of environmental restoration provisions. These were broadly consistent with 2018 at $0.2 billion, and primarily relate to increases at Copper and De Beers.

UNDERLYING EARNINGS*

Profit for the financial year increased by 5% to $4.6 billion (2018: $4.4 billion). Group underlying earnings increased to $3.5 billion (2018: $3.2 billion), owing to a 9% increase in underlying EBITDA, offset by an increase in the profit attributable to non-controlling interests.

Reconciliation from underlying EBITDA* to underlying earnings*

	Year ended		Year ended
$ million	31 December 2019		31 December 2018
Underlying EBITDA*	10,006		9,161
Depreciation and amortisation	(2,996	)	(2,784	)
Net finance costs and income tax expense	(2,469	)	(2,265	)
Non-controlling interests	(1,073	)	(875	)
Underlying earnings*	3,468		3,237

Depreciation and amortisation

Depreciation and amortisation increased by 8% to $3.0 billion (2018: $2.8 billion), owing to the impact of higher production at Minas-Rio and underground development at Metallurgical Coal, as well as the implementation of IFRS 16 Leases.

Net finance costs and income tax expense

Net finance costs, before special items and remeasurements, were $0.4 billion (2018: $0.4 billion).

The underlying effective tax rate was 30.8% (2018: 31.3%). The effective tax rate in 2019 was impacted by 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 UK statutory tax rate. The tax charge for the year, before special items and remeasurements, was $1.8 billion (2018: $1.5 billion).

Non-controlling interests

The share of underlying earnings attributable to non-controlling interests of $1.1 billion (2018: $0.9 billion) principally relates to minority shareholdings in Kumba, PGMs and Copper.

SPECIAL ITEMS AND REMEASUREMENTS

Special items and remeasurements are a net gain of $0.1 billion (2018: net gain of $0.3 billion) and include impairment reversals of $1.0 billion at Minas-Rio (Iron Ore), offset by impairments of $0.3 billion at Cerrejón (Coal) and $0.6 billion at the export thermal coal mines in South Africa. The balance remaining principally relates to operating remeasurements and contract termination costs.

Full details of the special items and remeasurements recorded are included in note 9 to the Condensed financial statements.

CASH FLOW

Cash flows from operations

Cash flows from operations increased to $9.3 billion (2018: $7.8 billion), reflecting an increase in underlying EBITDA from subsidiaries and joint operations.

Cash outflows on working capital were $50 million (2018: outflows of $30 million). Inventory increased by $434 million, reflecting planned increases at Copper and Nickel, as well as subdued sales at De Beers, particularly in the third quarter. Receivables increased by $170 million, owing to stronger product prices and the restart of operations at Minas-Rio. An increase in a customer pre-payment within PGMs, reflecting increased metal prices, and the restart of operations at Minas-Rio contributed to an offsetting increase in payables of $554 million.

Capital expenditure*

	Year ended		Year ended
$ million	31 December 2019		31 December 2018
Stay-in-business	1,656		1,617
Development and stripping	976		796
Life-extension projects(1)	358		245
Proceeds from disposal of property, plant and equipment	(8	)	(162	)
Sustaining capital	2,982		2,496
Growth projects(1)	847		340
Total	3,829		2,836
Capitalised operating cash flows	11		(18	)
Total capital expenditure	3,840		2,818

⁽¹⁾  Life-extension projects and growth projects are collectively referred to as expansionary capital expenditure.

Capital expenditure increased to $3.8 billion (2018: $2.8 billion), with rigorous capital discipline continuing to underpin the planning and execution of all projects.

Sustaining capital expenditure increased to $3.0 billion (2018: $2.5 billion), driven by increased stripping and development expenditure at Kumba and De Beers and a life-extension investment in Khwezela thermal coal mine in South Africa.

Growth capital expenditure increased to $0.8 billion (2018: $0.3 billion), largely due to expenditure on Quellaveco of $0.5 billion, net of Mitsubishi funding (gross expenditure at Quellaveco was $1.3 billion).

Attributable free cash flow*

The Group generated attributable free cash flow of $2.3 billion (2018: $3.2 billion). Growth in cash flows from operations to $9.3 billion (2018: $7.8 billion) was offset by increased capital expenditure of $3.8 billion (2018: $2.8 billion) and higher tax payments of $2.1 billion (2018: $1.4 billion), principally at Kumba Iron Ore, Copper and Metallurgical Coal. Following adoption of IFRS 16 Leases, repayments of lease obligations are excluded from underlying EBITDA but remain within attributable free cash flow.

Dividends

In line with the Group's established dividend policy to pay out 40% of underlying earnings, the Board has proposed a dividend of $0.47 per share, bringing the total dividends paid and proposed in respect of 2019 to $1.09 per share (2018: $1.00 per share).

Share buyback

In July 2019, the Board approved an additional return of up to $1 billion to shareholders via an on-market share buyback programme. This additional return recognises the resilience of our balance sheet, and our confidence in funding our portfolio of highly attractive near and medium term growth opportunities. The programme will end no later than 31 March 2020 and had returned $0.8 billion to shareholders as at 31 December 2019.

NET DEBT*

$ million	2019		2018
Opening net debt* at 1 January	(2,848	)	(4,501	)
Underlying EBITDA* from subsidiaries and joint operations	9,139		7,827
Working capital movements	(50	)	(30	)
Other cash flows from operations	171		(15	)
Cash flows from operations	9,260		7,782
Capital expenditure*	(3,840	)	(2,818	)
Capital repayments of lease obligations	(272	)	-
Cash tax paid	(2,116	)	(1,393	)
Dividends from associates, joint ventures and financial asset investments	520		738
Net interest(1)	(334	)	(315	)
Dividends paid to non-controlling interests	(894	)	(837	)
Attributable free cash flow*	2,324		3,157
Dividends to Anglo American plc shareholders	(1,422	)	(1,291	)
Disposals	24		193
Foreign exchange and fair value movements	(34	)	(248	)
Other net debt movements(2)	(2,670	)	(158	)
Total movement in net debt*(3)	(1,778	)	1,653
Closing net debt* at 31 December	(4,626	)	(2,848	)

⁽¹⁾  Includes cash outflows of $124 million (2018: outflows of $41 million), relating to interest payments on derivatives hedging net debt, which are included in cash flows from derivatives related to financing activities.

⁽²⁾  Includes the IFRS 16 Leases transition adjustment of $469 million; capital expenditure on the Quellaveco project funded from the 2018 syndication transaction of $515 million; Mitsubishi's subsequent share of Quellaveco capital expenditure of $329 million; the purchase of shares under the buyback of $777 million; and the purchase of shares for other purposes (including for employee share schemes) of $266 million.

⁽³⁾  Net debt excludes the own credit risk fair value adjustment on derivatives of $1 million (2018: $15 million).

Net debt (including related derivatives) of $4.6 billion has increased by $1.8 billion, representing gearing of 13% (2018: 9%). Net debt at 31 December 2019 comprised cash and cash equivalents of $6.3 billion (2018: $6.5 billion) and gross debt, including related derivatives, of $11.0 billion (2018: $9.4 billion). The increase in net debt since 31 December 2018 was driven by $0.5 billion of additional debt arising on adoption of IFRS 16 Leases on 1 January 2019, the purchase of $0.8 billion of ordinary shares under the share buyback scheme announced in July 2019, and incorporation of Mitsubishi debt for the development of Quellaveco offsetting attributable free cash flow of $2.3 billion.

BALANCE SHEET

Net assets of the Group increased by $1.6 billion to $31.4 billion (2018: $29.8 billion), reflecting the increased profit in the year and the effect of foreign exchange on operating assets denominated in local currency, offset by dividend payments to Company shareholders and non-controlling interests. Capital expenditure of $3.8 billion was partly offset by depreciation and amortisation of $3.0 billion.

ATTRIBUTABLE ROCE*

Attributable ROCE was flat at 19% (2018: 19%).  Attributable underlying EBIT was $5.5 billion (2018: $5.2 billion), reflecting higher prices, favourable exchange movements and the restart of operations at Minas-Rio, offset by cost and volume headwinds and inflationary pressures. Average attributable capital employed increased to $28.4 billion (2018: $27.4 billion) due to increased capital expenditure, foreign exchange movements and changes in accounting treatment arising from the adoption of IFRS 16 Leases.

LIQUIDITY AND FUNDING

Group liquidity remains conservative at $15.0 billion (2018: $13.9 billion), made up of $6.3 billion of cash (2018: $6.5 billion) and $8.7 billion of undrawn committed facilities (2018: $7.3 billion). On 1 January 2019, a committed shareholder loan facility of $1.8 billion from Mitsubishi Corporation became available to Anglo American Quellaveco S.A. to meet Mitsubishi's commitment to fund 40% of the remaining capital expenditure on the Quellaveco copper project in Peru.

In March 2019, the Group issued bonds for a US dollar equivalent value of $1.0 billion. The issuances consisted of a 7-year €500 million bond and a 10-year £300 million bond. These issuances pre-funded the $0.4 billion equivalent bond maturity in June 2019. The weighted average maturity on the bonds has reduced slightly to 4.5 years (2018: 5.0 years).

The Group received an upgrade to BBB/Baa2 (stable outlook) in March 2019 from S&P Global Ratings and Moody's Investors Service respectively.

PORTFOLIO UPGRADE

In 2019, our portfolio management strategy remained focused on continuously improving asset quality and our competitive position to ensure that we have a business that delivers sustainable free cash flows and returns to our shareholders. In this regard, we commenced or completed a number of transactions. We entered into a transaction, expected to complete in 2020, to provide for the equalisation of ownership across our integrated metallurgical coal operations at Moranbah North and Grosvenor through the sale of 12% in Grosvenor mine to the minority shareholders in Moranbah North. The Grosvenor mine uses Moranbah North's coal processing infrastructure, where numerous debottlenecking, expansion and product blending options offer considerable cost, productivity and margin benefits for the integrated operation.

We also completed the two-phased restructuring plan of Atlatsa (PGMs), which entailed, amongst others, the acquisition of the exploration properties adjacent to Mogalakwena mine. Namdeb Holdings, a joint operation between the Namibian government and De Beers, also announced the sale of Elizabeth Bay in September 2019.

In January 2020, Anglo American announced that an agreement has been reached with the board of Sirius Minerals Plc ('Sirius') on the terms of a recommended cash acquisition for the entire issued and to be issued share capital of Sirius.  Anglo American identified Sirius's Woodsmith polyhalite project in North Yorkshire (the 'Project') as being of potential interest given the quality of the underlying asset in terms of scale, resource life, operating cost profile and the nature and quality of its product. The Project has the potential to fit well with our established strategy of focusing on world-class assets, particularly in the context of Anglo American's portfolio trajectory towards later cycle products that support a fast-growing global population and a cleaner, greener, more sustainable world. The proposed transaction is subject to regulatory and Sirius shareholder approval.

THE BOARD

Changes during 2019 to the composition of the Board are set out below.

On 1 January, Byron Grote assumed the role of senior independent director, and Anne Stevens took over as chair of the Remuneration Committee.

On 1 April, Marcelo Bastos joined the Board as a non-executive director.

Following conclusion of the Annual General Meeting on 30 April, Jack Thompson stepped down from the Board as a non-executive director and as chairman of the Sustainability Committee. Ian Ashby took over as chairman of the Sustainability Committee with effect from the same date.

As announced in July:

•   Nolitha Fakude, a non-executive director since 2017, stepped down from the Board on 31 August to take up an executive role for the Group as chair of Anglo American's management board in South Africa. Ms Fakude joined Anglo American's Group Management Committee as Group Director - South Africa on 1 September;

•   Hixonia Nyasulu joined the Board as a non-executive director on 1 November; and

•   Nonkululeko Nyembezi joined the Board as a non-executive director on 1 January 2020.

The names of the Directors at the date of this report and the skills and experience our Board members contribute to the long term sustainable success of Anglo American are set out on the Group's website:

 www.angloamerican.com/about-us/leadership-team/board

PRINCIPAL RISKS AND UNCERTAINTIES

Anglo American 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 2019 year end are set out in detail in the strategic report section of the Integrated Annual Report 2019. The principal risks relate to the following:

•   Catastrophic risks

•   Product prices

•   Safety

•   Political and regulatory

•   Corruption

•   Cyber security

•   Future demand for diamonds

•   Operational performance

•   Water

•   Future demand for PGMs

•   Evolving stakeholder requirements and expectations.

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 Integrated Annual Report 2019 is available on the Group's website www.angloamerican.com .

DE BEERS

Financial and operational metrics⁽¹⁾

	Production volume		Sales volume		Price		Unit cost*		Group revenue*		Underlying EBITDA*		EBITDA margin(6)		Underlying EBIT*		Capex*		ROCE*
	'000 cts		'000  cts(2)		$/ct(3)		$/ct(4)		$m(5)		$m				$m		$m(7)
De Beers	30,776		29,186		137		63		4,605		558		43	%	168		567		2	%
Prior year	35,297		31,656		171		60		6,082		1,245		53	%	694		417		8	%
Botswana	23,254		-		139		29		-		385		-		325		88		-
Prior year	24,132		-		155		28		-		495		-		441		97		-
Namibia	1,700		-		534		303		-		121		-		86		55		-
Prior year	2,008		-		550		274		-		176		-		140		38		-
South Africa	1,922		-		108		73		-		57		-		28		275		-
Prior year	4,682		-		109		54		-		163		-		58		177		-
Canada	3,900		-		119		44		-		138		-		66		31		-
Prior year	4,475		-		144		52		-		231		-		78		127		-
Trading	-		-		-		-		-		133		3	%	126		4		-
Prior year	-		-		-		-		-		413		8	%	407		2		-
Other(8)	-		-		-		-		-		(276	)	-		(463	)	114		-
Prior year	-		-		-		-		-		(233	)	-		(430	)	(24	)	-

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

⁽²⁾   Total sales volumes on a 100% basis were 30.9 million carats (2018: 33.7 million carats). Total sales volumes (100%) include De Beers Group's joint arrangement partners' 50% proportionate share of sales to entities outside De Beers Group from Diamond Trading Company Botswana and Namibia Diamond Trading Company.

⁽³⁾   Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The De Beers realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to De Beers 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 $4.0 billion (2018: $5.4 billion).

⁽⁶⁾   Total De Beers EBITDA margin shows Mining EBITDA Margin, which excludes the impact of third-party sales, purchases and trading.

⁽⁷⁾   In 2018, includes the acquisition of Peregrine Diamonds Limited for a consideration of $87 million.

⁽⁸⁾   Other includes Element Six, downstream, acquisition accounting adjustments and corporate.

Markets

A range of factors created significant challenges for rough diamond demand in 2019: in late 2018, stock market volatility and US-China trade tensions resulted in lower than expected holiday retail sales, which led to higher than anticipated stock levels in the industry's midstream at the start of 2019. Throughout the course of 2019, the midstream inventory position was under further pressure due to the closure of some US 'bricks and mortar' retail outlets, an increase in online purchasing (where inventory levels are lower), and retailers increasing their stock held on consignment. Tighter financing also affected the midstream's ability to hold stock, all of which resulted in lower demand for rough diamonds.

In US dollar terms, global consumer demand for diamond jewellery was broadly flat in 2019. This was despite the challenges of increased uncertainty around the economic outlook owing to the continued US-China trade tensions, as well as the impact of the Hong Kong protests and certain macro-economic issues affecting consumer confidence in India. US consumer demand remained reasonably strong, but growth in local currency terms in China and Japan was offset by the strength of the US dollar, while demand from India and the Gulf declined.  

Financial and operational overview

Total revenue decreased by 24% to $4.6 billion (2018: $6.1 billion), with rough diamond sales falling by 26% to $4.0 billion (2018: $5.4 billion). This was due to an 8% decrease in consolidated rough diamond sales volumes to 29.2 million carats (2018: 31.7 million carats) and a 20% reduction in average realised price to $137/ct (2018: $171/ct). The reduction in realised price was driven by a 6% decline in the average rough price index and from a lower value mix of diamonds sold, in response to the weaker demand for higher value diamonds.

In response to the challenging midstream trading environment, De Beers offered increased supply flexibility to Sightholders and sold a lower value and volume of rough diamonds to the midstream, while increasing marketing expenditure to $178 million (2018: $166 million) to further drive consumer demand for diamond jewellery.

Underlying EBITDA decreased by 55% to $558 million (2018: $1,245 million) owing to lower sales volumes, a lower value sales mix which curtailed mining margins, and the lower rough price index which reduced margins in the trading business.  Profitability in the mining business was supported by improved efficiencies and cost savings; so, although there was a 13% decline in production in response to weaker demand, with the business being impacted by mining cost inflation in southern Africa, unit cost increases were limited to 5%.

Operational performance

Mining and manufacturing

Rough diamond production decreased by 13% to 30.8 million carats (2018: 35.3 million carats), primarily driven by a reduction in South Africa. While trading conditions have improved somewhat since the third quarter of the year, production was lower in response to softer rough diamond demand conditions compared with 2018.

In Botswana, production was 4% lower at 23.3 million carats (2018: 24.1 million carats). Production at Jwaneng increased by 5% to 12.5 million carats (2018: 11.9 million carats) as throughput rose to partly offset a 12% decrease at Orapa to 10.8 million carats (2018: 12.2 million carats), owing to a delay in an infrastructure project and expected lower grades.

In Namibia, production decreased by 15% to 1.7 million carats (2018: 2.0 million carats). Output from the marine operation declined by 10% owing to routine planned maintenance for the Mafuta vessel. Production at the land operations decreased by 29% to 0.4 million carats (2018: 0.6 million carats) as a result of placing Elizabeth Bay onto care and maintenance in December 2018. In September 2019, the sale of Elizabeth Bay was announced.

In South Africa, production decreased by 59% to 1.9 million carats (2018: 4.7 million carats) as the mining sequence at the Venetia open pit had a higher waste to ore ratio as it moves into its final years, prior to the transition to underground. Production at Voorspoed ceased following the operation being placed onto care and maintenance in the final quarter of 2018.

In Canada, production decreased by 13% to 3.9 million carats (2018: 4.5 million carats) as Victor reached the end of its life during the second quarter of 2019, resulting in a 55% decrease in output to 0.4 million carats (2018: 0.9 million carats). Gahcho Kué maintained output at 3.5 million carats (2018: 3.5 million carats), with a planned grade reduction offset by strong plant performance.

Brands

In 2019, De Beers continued to invest in its downstream brands to support the long term growth of consumer demand for natural diamonds.

De Beers Jewellers continued to upgrade and expand its retail network during 2019, as well as integrating its online and store presence into an improved combined offering.

Forevermark™ continues to grow its presence and sales worldwide. It is now available in around 2,500 retail outlets globally, with the brand being launched in Italy, Austria and Belgium during 2019. Dedicated Forevermark™-only stores are now operating in China, the US and India. 

Operational and market outlook

Preliminary data following the holiday retail season in 2019 indicates that stock levels in the industry's midstream are returning to a more balanced position following stable consumer demand, especially in the US. However, risks remain to the downside, with further increases in online purchasing causing additional retailer destocking, developments in US-China trade tensions, the coronavirus which originated in China over Chinese New Year, geo-political escalation in the Middle East and the effect those may have on economic growth and consumer sentiment.

2020 production guidance is 32-34 million carats, subject to trading conditions. The higher production is driven by an expected increase in ore from the final open-pit cut at Venetia, supported by a currently anticipated improvement in trading conditions compared with 2019.

COPPER

Financial and operational metrics

	Production volume		Sales volume		Price		Unit cost*		Group revenue*		Underlying EBITDA*		Mining EBITDA margin(2)		Underlying EBIT*		Capex*		ROCE*
	kt		kt(1)		c/lb(2)		c/lb(3)		$m(4)		$m				$m		$m
Copper	638		644		273		126		5,840		1,618		44	%	960		1,078		16	%
Prior year	668		672		283		134		5,168		1,856		48	%	1,234		703		22	%
Los Bronces(5)	335		336		-		135		1,872		745		40	%	378		239		-
Prior year	370		376		-		145		2,175		969		45	%	625		217		-
Collahuasi(6)	249		254		-		100		1,414		916		65	%	691		275		-
Prior year	246		243		-		105		1,460		960		66	%	736		295		-
Quellaveco(7)	-		-		-		-		-		-		-		-		494		-
Prior year	-		-		-		-		-		-		-		-		131		-
Other operations(8)	54		54		-		-		2,554		(43	)	7	%	(109	)	70		-
Prior year	53		53		-		-		1,533		(73	)	26	%	(127	)	60		-

⁽¹⁾   Excludes 349 kt third-party sales (2018: 178 kt).

⁽²⁾   Realised price, excludes impact of third-party sales.

⁽³⁾   C1 unit cost includes by-product credits.

⁽⁴⁾   Group revenue is shown after deduction of treatment and refining charges (TC/RCs).

⁽⁵⁾   Figures on a 100% basis (Group's share: 50.1%).

⁽⁶⁾   44% share of Collahuasi production, sales and financials.

⁽⁷⁾  Figures on a 100% basis (Group's share: 60%), except capex which represents the Group's share after deducting direct funding from non-controlling interests. 2019 capex on a 100% basis was $1,338 million, of which $515 million was funded by cash from the Mitsubishi syndication transaction in 2018. Of the remaining $823 million, the Group and Mitsubishi funded their respective 60% and 40% shares via shareholder loans.

⁽⁸⁾  Other operations includes El Soldado and Chagres (figures on a 100% basis, Group's share: 50.1%), third-party sales and purchases.

Financial and operational overview

Underlying EBITDA decreased by 13% to $1,618 million (2018: $1,856 million), driven by a decrease in the average LME copper price and a 4% reduction in sales volumes. The lower sales reflect a 5% decrease in production, driven by the ongoing severe drought conditions in Chile, mitigated to some extent by productivity improvements, including record copper in concentrate production at Collahuasi. Unit costs decreased by 6%, to 126 c/lb (2018: 134 c/lb), the lowest since 2010, reflecting sustainable cost savings coupled with favourable movements in the Chilean peso, which fully offset the impact of inflation and lower production. At 31 December 2019, 111,213 tonnes of copper were provisionally priced at 273 c/lb (2018: 179,100 tonnes provisionally priced at 271 c/lb).

Markets

	31 December 2019	31 December 2018
Average market price (c/lb)	272	296
Average realised price (c/lb)	273	283

The differences between the market price and realised price are largely a function of the timing of sales across the period and provisional pricing adjustments.

The average LME cash copper price in 2019 was 8% lower at 272 c/lb (2018: 296 c/lb). Trade tensions between the US and China and measures to restrict shadow lending by the Chinese authorities contributed to slower economic growth in China, adversely affecting key copper-consuming sectors. As a result, investors were risk averse through most of the year and the weaker US dollar/Chinese renminbi exchange rate also put pressure on the copper price. However, a decrease in reported warehouse stocks and stagnant growth in global copper mine supply provided some support. 

Operational performance

Total production decreased by 5%, to 638,000 tonnes (2018: 668,300 tonnes).

At Los Bronces, production decreased by 9% to 335,000 tonnes (2018: 369,500 tonnes), with planned higher grades (0.83% vs. 2018: 0.76%) offset by production losses owing to lower water availability. Chile's central zone, where the operation is located, continues to face unprecedented climate conditions, with 2019 being the driest year since the start of the current decade-long drought, and one of the driest years on record. Despite the lower production, C1 unit costs decreased by 7% to 135 c/lb (2018: 145 c/lb), reflecting a series of initiatives to reduce costs.

At Collahuasi, Anglo American's attributable share of copper production increased by 1% to 248,800 tonnes (2018: 246,000 tonnes), another copper in concentrate production record, with planned lower grade (1.19% vs. 2018: 1.29%) fully compensated by a solid plant performance following the successful completion of planned three-month maintenance of Line 3 (responsible for 60% of plant throughput) during the first half of the year. C1 unit costs decreased by 5% to 100 c/lb (2018: 105 c/lb) on the back of strong production performance and lower waste stripping expensed.

The Copper business has continued to progress trials for new technology as part of the FutureSmart Mining^TM programme, working towards a more sustainable future for mining. Following a successful bulk ore sorting pilot at El Soldado in Chile, units were constructed and on trial in Brazil at Barro Alto (Nickel), and in South Africa at Mogalakwena (PGMs), with plans to roll-out to more sites over the next few years. The focus for early 2020 is the completion of the El Soldado coarse particle recovery demonstration plant.

Production at El Soldado increased by 3% to 54,200 tonnes (2018: 52,700 tonnes) as a result of planned higher grades (0.93% vs. 2018: 0.85%). C1 unit costs were broadly in line with 2018 at 205 c/lb (2018: 206 c/lb).

Operational outlook

Production guidance for 2020 is 620,000-670,000 tonnes, subject to water availability.

Quellaveco update

Project execution is on track at around 40% completion, with all key milestones for 2019 achieved on schedule.

The construction of Vizcachas dam, part of the water source infrastructure located approximately 90 kilometres north-east of the plant, is progressing to plan, with water impoundment expected to begin during the rainy season in early 2020. Once built, the Vizcachas reservoir will bring substantial benefits to local agriculture, in addition to providing an annual average of around 20% of the water needed to sustain Quellaveco's operations. Construction of the water pipeline from the water source to the Quellaveco site is a key activity for 2020.

In the mine area, earthworks are significantly progressed and concrete work for the primary crusher has commenced. Preparations are under way for the start of pre-stripping, to remove surface waste material, in the first half of 2020.

At the processing plant area, earthworks are complete, concrete placement is advancing to plan, and structural steel and mechanical equipment installation has commenced. Assembly of the mills is scheduled to start in 2020.

The project remains on track to deliver first production in 2022, within the $5.0-$5.3 billion capital expenditure estimate (100% basis; Anglo American share: $2.5-$2.7 billion), with ramp-up in 2023. Quellaveco expects to deliver around 300,000 tonnes per annum of copper equivalent production (100% basis) on average in the first 10 years of operation.

In 2019, capital expenditure (100% basis) totalled $1,338 million, of which $515 million was funded using the remaining proceeds from the syndication transaction with Mitsubishi in 2018, and hence is not included in reported capital expenditure. Of the remaining $823 million, the Group and Mitsubishi funded their respective 60% and 40% shares of capital expenditure via shareholder loans. Capital expenditure guidance (100% basis) for 2020 is $1.5-$1.7 billion, of which the Group's share is $0.9-$1.0 billion.

PLATINUM GROUP METALS

Financial and operational metrics

	Production volume platinum		Production volume palladium		Sales volume platinum		Basket price		Unit cost*		Group revenue*		Underlying EBITDA*		Mining EBITDA margin(5)		Underlying EBIT*		Capex*		ROCE*
	koz(1)		koz(1)		koz(2)		$/Pt oz(3)		$/Pt oz(4)		$m		$m				$m		$m
PGMs	2,051		1,386		2,215		2,819		1,543		6,866		2,000		40	%	1,672		569		38	%
Prior year	2,021		1,379		2,424		2,219		1,561		5,680		1,062		29	%	705		496		15	%
Mogalakwena	518		558		519		3,433		1,329		1,789		995		56	%	863		264		-
Prior year	495		541		492		2,759		1,398		1,367		623		46	%	478		210		-
Amandelbult	454		209		458		2,624		1,725		1,206		355		29	%	298		84		-
Prior year	443		205		445		2,222		1,717		996		153		15	%	96		74		-
Other operations(6)	407		282		425		2,879		1,621		1,202		329		27	%	216		221		-
Prior year	386		268		367		2,272		1,600		889		68		8	%	(56	)	212		-
Processing and trading(7)	672		337		813		-		-		2,669		321		12	%	295		-		-
Prior year	697		365		1,120		-		-		2,428		218		9	%	187		-		-

⁽¹⁾  Production reflects own-mined production and purchase of metal in concentrate. Comparative excludes purchase of concentrate volumes now treated under tolling arrangement.

⁽²⁾  Sales volumes exclude the sale of refined metal purchased from third parties and toll material. Comparatives include purchase of concentrate volumes now transitioned to tolling.

⁽³⁾  Average US$ realised basket price. Excludes the impact of the sale of refined metal purchased from third parties.

⁽⁴⁾  Total cash operating costs - includes on-mine, smelting and refining costs only.

⁽⁵⁾   The total PGMs mining EBITDA margin excludes the impact of the sale of refined metal purchased from third parties, purchase of concentrate and tolling.

⁽⁶⁾   Includes Unki, Union (prior to disposal), Mototolo (post-acquisition on 1 November 2018), PGMs' share of joint operations.

⁽⁷⁾   Purchase of concentrate from joint operations, associates and third parties for processing into refined metals, tolling and trading activities.

Financial and operational overview

Underlying EBITDA increased by 88% to $2,000 million (2018: $1,062 million), largely as a result of a 27% increase in the dollar basket price, driven primarily by stronger prices for palladium and rhodium, and a solid operational performance.

Markets

	31 December 2019		31 December 2018
Average platinum market price ($/oz)	864		880
Average palladium market price ($/oz)	1,539		1,029
Average rhodium market price ($/oz)	3,914		2,214
US$ realised basket price ($/Pt oz)	2,819		2,219
Rand realised basket price (R/Pt oz)	40,862		29,601

The basket price increased by 27% in dollar terms and 38% in South African rand terms. The average platinum price decreased by 2%, recovering well in the second half owing to strong investor demand, following weaker sentiment earlier in the year. In contrast, average palladium and rhodium prices strengthened by 50% and 77% respectively, despite a fall in global light duty vehicle sales, due to strong automotive demand driven by tighter emissions regulations in key markets. 

Operational performance

Total platinum production (metal in concentrate) increased by 1% to 2,050,600 ounces, with total palladium output also improving by 1% to 1,385,900 ounces. This excludes the effect of the transition of Rustenburg material to a tolling arrangement in the year (2018: 464,200 platinum ounces, 231,800 palladium ounces). This result was achieved despite the impact of Eskom power outages on production, which led to a loss of approximately 17,000 platinum ounces and 13,000 palladium ounces.

Own-mined production

Own-mined platinum and palladium production both increased by 4% to 1,378,200 ounces and 1,049,200 ounces respectively. This was largely driven by increased production across the portfolio, as well as the acquisition of the remaining 50% of Mototolo in November 2018.

Mogalakwena's platinum production increased by 5% to 517,500 ounces, and palladium production by 3% to 557,900 ounces, owing to an increase in grade and throughput. Ore stockpiles were drawn down to supplement production, as maintenance was carried out on the North concentrator in the second quarter of 2019, and the rope shovel in the fourth quarter of 2019.

Amandelbult platinum and palladium production both increased by 2% to 453,600 ounces and 208,900 ounces respectively. Infrastructure upgrades, exacerbated by power disruptions in both the first quarter and December, were offset by an increase in mining efficiencies as the ramp-up of Dishaba Lower accelerated in the second half.

Production of both platinum and palladium from other operations increased by 5% to 407,100 and 282,400 ounces respectively. This performance reflected record production levels at Unki and increased volumes from Mototolo which was wholly owned for the full year (acquisition of the remaining 50% of Mototolo was concluded on 1 November 2018, from which date 100% of production became own-mined production). On a 100% basis, platinum and palladium production decreased at Mototolo by 15% to 112,000 ounces and by 17% to 68,700 ounces respectively, owing to a one-off benefit in 2018 from stockpiled material that was toll-concentrated at Bokoni, as well as a decline in grade, and unprotected industrial action in May 2019.

Joint operation platinum and palladium production (split equally between own-mined and purchase of concentrate), excluding Mototolo, both decreased by 4% to 411,400 ounces and 269,000 ounces respectively, due to safety-related stoppages at Modikwa and Eskom power disruptions affecting production at Kroondal in December 2019.

Purchase of concentrate

Purchase of concentrate, excluding Sibanye material which transitioned to a tolling arrangement from 1 January 2019, decreased by 4% to 672,400 ounces in the case of platinum and by 8% to 336,700 ounces for palladium, reflecting the lower production from joint operations.

Refined production and sales volumes

Refined platinum production (excluding Sibanye toll-treated metal and concentrate purchased from Sibanye) increased by 8% to 2,112,300 ounces, while refined palladium output rose by 12% to 1,428,200 ounces. The improved operational performance was partly offset by the impact of Eskom's power disruptions during the year, including an outage at the Rustenburg refinery in December, which led to a loss of refined platinum production of 69,000 ounces and palladium production of 44,000 ounces, of which around 45,000 platinum ounces and 25,000 palladium ounces should be recovered in refined production in 2020.

Platinum sales volumes increased by 7% to 2,100,300 ounces, while palladium sales increased by 13% to 1,453,500 ounces (excluding concentrate purchased from Sibanye prior to the transition to a tolling agreement and refined metals purchased from third parties). The increase was a result of the higher comparable refined production and some drawdown in refined inventory.

Operational outlook

Metal in concentrate production for 2020 is expected to be 2.0-2.2 million ounces for platinum (of which approximately 65% own-mined) and  approximately 1.4 million ounces for palladium (of which approximately 65% own-mined), subject to Eskom's power performance.

IRON ORE

Financial and operational metrics

	Production volume		Sales volume		Price		Unit  cost*		Group revenue*		Underlying EBITDA*		Mining EBITDA margin		Underlying EBIT*		Capex*		ROCE*
	Mt(1)		Mt		$/t(2)		$/t(3)		$m		$m(4)				$m(4)		$m
Iron Ore	-		-		-		-		6,758		3,407		50	%	2,952		594		31	%
Prior year	-		-		-		-		3,768		1,177		31	%	747		415		3	%
Kumba Iron Ore (5)	42.4		42.0		97		33		4,445		2,243		50	%	1,918		389		70	%
Prior year	43.1		43.3		72		32		3,440		1,489		43	%	1,158		309		42	%
Iron Ore Brazil (Minas-Rio)	23.1		22.9		79		21		2,313		1,164		50	%	1,034		205		20	%
Prior year	3.4		3.2		70		-		328		(312	)	-		(411	)	106		(9	)%

⁽¹⁾   Minas-Rio production is Mt (wet basis).

⁽²⁾  Prices for Kumba Iron Ore are the average realised export basket price (FOB Saldanha). Prices for Minas-Rio 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 Minas-Rio are on an FOB (wet) basis and were not disclosed for 2018, due to the suspension of operations.

⁽⁴⁾  Kumba Iron Ore segment includes $66 million projects and corporate costs (2018: $55 million). Iron Ore Brazil segment includes $55 million projects and corporate costs (2018: $40 million).

⁽⁵⁾  Sales volumes, stock and realised price for 2019 differ to Kumba's stand-alone reported results due to sales to other Group companies.

Financial and operational overview

Kumba

Underlying EBITDA increased by 51% to $2,243 million (2018: $1,489 million), driven by a 35% increase in the average realised iron ore price to $97/tonne (2018: $72/tonne). FOB unit costs increased marginally to $33/tonne  (2018: $32/tonne) primarily due to higher maintenance costs and mining in a more geologically challenging area of the mine. These factors were partly offset by the weaker South African rand, operational efficiency improvements and cost savings.

Total sales volumes decreased by 3% to 42.0 Mt (2018: 43.3 Mt) due to lower domestic sales of 2.2 Mt (2018: 3.3 Mt) following the winding down of the Saldanha Steel plant. Export sales of 39.8 Mt (2018: 40.0 Mt) were marginally lower due to the scheduled refurbishment of the second ship loader at Saldanha port. Consequently, total finished stock increased to 6.6 Mt⁽⁵⁾ (2018: 5.3 Mt). Rail performance improved significantly in 2019, with port stock levels well set for the first quarter of 2020.

Minas-Rio

Minas-Rio recorded an underlying EBITDA of $1,164 million (2018: $312 million loss), reflecting the solid ramp-up following approval to restart the operation in December 2018, as well as cost efficiencies and strong price realisation. Unit costs of $21/tonne, lower than the original guidance of $28-31/tonne, were driven by the higher production, P101 initiatives to improve productivity, and lower energy and consumables prices.

Markets

	31 December 2019	31 December 2018
Average market price (IODEX 62% Fe CFR China - $/tonne)	93	69
Average market price (MB 66% Fe Concentrate CFR - $/tonne)	104	95
Average realised price (Kumba export - $/tonne) (FOB Saldanha)	97	72
Average realised price (Minas-Rio - $/tonne) (FOB wet basis)	79	70

Kumba's outperformance over the IODEX (Platts) 62% Fe CFR China index was primarily due to the higher iron content at 64.2% and the relatively high proportion (approximately 67%) of lump in its product portfolio.

Minas-Rio's pellet feed product is also higher grade (higher iron content of 67% and lower gangue) than the reference product used for the IODEX 62% Fe CFR China index. The Metal Bulletin (MB) 66 index, therefore, is used when referring to Minas-Rio product. 

Operational performance

Kumba

Total production decreased by 2% to 42.4 Mt (2018: 43.1 Mt), driven by a 5% decrease at Kolomela to 13.2 Mt (2018: 13.9 Mt) as a result of the infrastructure upgrade of the DMS plant. Production volumes at Sishen were flat at 29.2 Mt, with improved plant performance in the second half of the year compensating for the operational challenges earlier in the year.

Sishen's waste stripping decreased marginally to 181 Mt (2018: 182 Mt), while Kolomela's waste stripping increased by 13% to 63 Mt (2018: 56 Mt). Progress continues to be made towards P101 benchmark efficiency, with Kumba's operating efficiency increasing to 68% (2018: 65%). The efficiency improvement projects included: improving truck efficiency and payloads, payload management and smart roads.

Minas-Rio

Production of 23.1 Mt (2018: 3.4 Mt) was driven by strong operational performance, reflecting the optimisation work undertaken during 2018 while operations were suspended, the impact of P101 productivity initiatives and access to the Step 3 mining area higher grade ore. The construction of the scheduled tailings dam raise was completed in August 2019, and approval for the conversion of the installation licence to an operating licence was granted in December 2019.

Operational outlook

Kumba

Kumba's production guidance for 2020 is 41.5-42.5 Mt.

Minas-Rio

Production guidance for 2020 is 22-24 Mt, which allows for a one-month production stoppage in the second quarter to carry out routine internal scanning of the pipeline.

COAL

Financial and operational metrics

	Production volume		Sales volume		Price		Unit cost*		Group revenue*		Underlying EBITDA*		Mining EBITDA margin(6)		Underlying EBIT*		Capex*		ROCE*
	Mt(1)		Mt(2)		$/t(3)		$/t(4)		$m		$m(5)				$m(5)		$m
Coal	-		-		-		-		6,137		1,832		33	%	1,010		934		26	%
Prior year	-		-		-		-		7,788		3,196		46	%	2,538		722		67	%
Metallurgical Coal	22.9		22.4		165		63		3,756		1,707		45	%	1,079		670		39	%
Prior year	21.8		22.0		190		64		4,231		2,158		51	%	1,722		574		80	%
Thermal Coal - South Africa	17.8		18.1		61		45		1,887		(5	)	(3	)%	(94	)	264		(19	)%
Prior year	18.4		18.3		87		44		2,719		650		34	%	521		148		68	%
Thermal Coal - Colombia(7)	8.6		8.8		56		33		494		130		26	%	25		-		4	%
Prior year	10.2		10.1		83		36		838		388		46	%	295		-		35	%

⁽¹⁾  Production volumes are saleable tonnes. South African production volumes include export primary production, secondary production sold into export markets, production sold domestically at export parity pricing and pre-commercial production volumes from Navigation section of Khwezela and excludes other domestic production of 10.0 Mt (2018: 13.7 Mt). Included in other domestic production in 2018 is 2.8 Mt from the Eskom-tied operations, which were sold on 1 March 2018. Metallurgical Coal production volumes exclude thermal coal production of 1.4 Mt (2018: 1.4 Mt).

⁽²⁾   South African sales volumes include export primary production, secondary production sold into export markets and production sold domestically at export parity pricing and pre-commercial production volumes from Navigation section of Khwezela and exclude domestic sales of 9.8 Mt (2018: 13.1 Mt) and non-equity traded sales of 10.9 Mt (2018: 9.5 Mt). Included in 2018 is domestic sales of 2.8 Mt from the Eskom-tied operations, which were sold on 1 March 2018. Metallurgical Coal sales volumes exclude thermal coal sales of 1.8 Mt (2018: 1.6 Mt).

⁽³⁾  Metallurgical Coal realised price is the weighted average hard coking coal and PCI sales price achieved. Thermal Coal - South Africa realised price is the weighted average export thermal coal price achieved. Excludes third-party sales.

⁽⁴⁾   FOB cost per saleable tonne, excluding royalties. Metallurgical Coal excludes study costs. Thermal Coal - South Africa unit cost is for the trade operations.

⁽⁵⁾   Metallurgical Coal segment includes $69 million projects and corporate costs (2018: $52 million). Thermal Coal - South Africa segment includes $59 million projects and corporate costs (2018: $45 million).

⁽⁶⁾   Excludes impact of third-party sales and, in 2018, Eskom-tied operations.

⁽⁷⁾   Represents the Group's attributable share from its 33.3% interest in Cerrejón.

Financial and operational overview

Metallurgical Coal

Underlying EBITDA decreased by 21% to $1,707 million (2018: $2,158 million), with a 2% increase in sales volumes and a 2% decrease in US dollar unit costs to $63/tonne (2018: $64/tonne), being offset by a 13% reduction in the realised price for metallurgical coal.

Thermal Coal - South Africa

Underlying EBITDA fell to a $5 million loss (2018: $650 million profit), driven by a 30% decrease in the realised export thermal coal price and marginally lower export sales volumes at 18.1 Mt (2018: 18.3 Mt). Unit costs were in line with the prior year at $45/tonne (2018: $44/tonne) as productivity improvements, cost savings and the favourable impact of the weaker South African rand offset the effects of inflation and lower production volumes.

Thermal Coal - Colombia

Underlying EBITDA decreased by 66% to $130 million (2018: $388 million), reflecting a 33% decrease in average realised price and a 13% reduction in sales volumes as a result of weaker market demand, as well as dust restrictions in the first half of the year. In response to the lower demand, Cerrejón reduced unit costs by 8% to $33/tonne through optimisation of the mine plan to exclude higher cost volumes that were not economic at current prices.

Revenue for thermal coal includes amounts earned from the sale of volumes purchased from third parties (non-equity traded sales) that were not mined by the Group. Excluding these volumes, revenue from the mining of thermal coal (including thermal coal volumes from South Africa, Colombia and the Metallurgical Coal business) is $1,783 million (or 6% of the Group's revenue).

Markets

Metallurgical coal

	31 December 2019		31 December 2018
Average benchmark price hard coking coal ($/tonne)(1)	177		207
Average benchmark price PCI ($/tonne)(1)	110		136
Average realised price for premium low-volatile hard coking coal ($/tonne)	171		194
Average realised price for PCI ($/tonne)	110		128

⁽¹⁾  Represents average spot prices.

Average realised prices differ from the average market price owing to differences in material grade and timing of contracts.

Market prices decreased in line with demand through the second half of the year. Demand was affected by increasingly stringent coal import policies at ports in China and a slowdown in the Indian economy, as well as lower production at east Asian steel mills in response to weaker steel margins.

Thermal coal

	31 December 2019		31 December 2018
Average market price ($/tonne, FOB South Africa)	72		98
Average market price ($/tonne, FOB Colombia)	54		85
Average realised price - Export South Africa ($/tonne, FOB)	61		87
Average realised price - Domestic South Africa ($/tonne)	14		19
Average realised price - Colombia ($/tonne, FOB)	56		83

The average realised price for export thermal coal differs from the average market price owing to timing differences and quality discounts relative to the industry benchmark.

Thermal coal prices fell sharply as lower gas and higher carbon prices encouraged a switch from coal to gas-generated power in Europe. Indian imports, however, remained strong, supported by local steelmaking demand. Delays to customs clearances at Chinese ports and various restrictions in Korea and Taiwan kept pressure on Pacific pricing towards the end of the year.

Operational performance

Metallurgical Coal

Production increased by 5% to 22.9 Mt (2018: 21.8 Mt), owing to a 1.0 Mt production increase at Grosvenor, operational improvements leading to a 10% increase in wash plant throughput partially offset by the impact of an extended longwall move at Moranbah. In addition, there was a strong performance at Dawson where P101 productivity improvements drove an increase in shovel and dragline performance.

Thermal Coal - South Africa

Export production decreased by 3% to 17.8 Mt (2018:18.4 Mt) mainly due to mine sections reaching their end of life at Khwezela and Goedehoop.

Thermal Coal - Colombia

Anglo American's attributable production from its 33.3% ownership of Cerrejón decreased by 16% to 8.6 Mt (2018: 10.2 Mt) in response to dust restrictions in the first half and a reduction in market demand in the second half of 2019. 

Operational outlook

Metallurgical coal

Export metallurgical coal production guidance for 2020 has been revised to 19-21 Mt (previously 21-23 Mt), with unit costs of around $70/tonne (previously around $65/tonne) following a roof collapse at Moranbah North on 30 January 2020. The sale of a 12% interest in the Grosvenor mine is expected to complete in 2020, equalising the ownership across Moranbah-Grosvenor, which is reflected in the guidance.

Export thermal coal

Export thermal coal production guidance for 2020 is around 26 Mt.

NICKEL AND MANGANESE

Financial and operational metrics

	Production volume(1)		Sales volume(1)		Price		Unit cost*		Group revenue*		Underlying EBITDA*		Mining EBITDA margin		Underlying EBIT*		Capex*		ROCE*
					c/lb(2)		c/lb(3)		$m		$m(4)				$m(4)		$m
Nickel and Manganese	-		-		-		-		1,498		634		42	%	477		42		20	%
Prior year	-		-		-		-		1,707		844		49	%	685		38		28	%
Nickel	42,600		41,700		624		380		572		191		33	%	89		42		4	%
Prior year	42,300		43,100		588		361		560		181		32	%	75		38		4	%
Samancor(5)	3.7		3.7		-		-		926		443		48	%	388		-		109	%
Prior year	3.8		3.7		-		-		1,147		663		58	%	610		-		159	%

⁽¹⁾   Nickel production and sales are tonnes (t). Samancor production and sales are million tonnes (Mt).

⁽²⁾   Realised price.

⁽³⁾   C1 unit cost.

⁽⁴⁾   Nickel segment includes $12 million projects and corporate costs (2018: $8 million).

⁽⁵⁾  Production, sales and financials include ore and alloy.

Financial and operational overview

Nickel

Underlying EBITDA increased by 6% to $191 million (2018: $181 million), benefiting from improved operational stability and a 6% higher realised price, partly offset by a 3% decrease in sales volumes and higher unit costs.

Unit costs increased by 5% to 380 c/lb (2018: 361 c/lb), driven mainly by a rise in the consumption of coal as a reductant due to higher iron content in ore, the impact of higher consumable prices, and new local legislation that increased freight costs.

Samancor

Underlying EBITDA decreased by 33% to $443 million (2018: $663 million), mainly owing to the lower manganese ore price and, to a lesser extent, an 18% decrease in attributable manganese alloy sales, in line with reduced Australian and South African alloy production.

Markets

Nickel

	31 December 2019	31 December 2018
Average market price (c/lb)	632	595
Average realised price (c/lb)	624	588

Ferronickel is traded based on discounts or premiums to the LME nickel 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.

The average nickel price increased by 6% to 632 c/Ib (2018: 595 c/lb), driven by strong growth in stainless steel production in China and solid battery demand growth (principally, zero emission vehicles and lithium-ion-based energy storage). Prices were also supported by Indonesia bringing forward its ban on nickel ore exports from January 2023 to January 2020, which is expected to markedly reduce nickel ore supply to Chinese nickel pig iron producers.

Samancor

The average benchmark price for manganese ore (Metal Bulletin 44% manganese ore CIF China) was $5.58/dmtu, a decrease of 23% (2018: $7.24/dmtu). The effect of strong steel output and stricter reinforcing steel standards in China was more than offset by an increase in manganese ore supply from South Africa.

Operational performance

Nickel

Nickel output increased by 1% to 42,600 tonnes (2018: 42,300 tonnes), reflecting improved operational stability.

Samancor

Attributable manganese ore production decreased by 3% to 3.5 Mt (2018: 3.6 Mt). Output from the Australian operations decreased by 6% owing to the impact of a major cyclone in March which, combined with high clay content, adversely affected the quality of the feed to the processing plant. This was partly offset by a 3% increase in production from the South African operations as a result of improved mining productivity.

Operational outlook

Nickel

Production guidance for 2020 is 42,000-44,000 tonnes.

CORPORATE AND OTHER

Financial metrics

	Group revenue*		Underlying EBITDA*		Underlying EBIT*		Capex*
	$m		$m		$m		$m
Segment	121		(43	)	(229	)	56
Prior year	3		(219	)	(226	)	27
Exploration	-		(126	)	(128	)	1
Prior year	-		(113	)	(113	)	-
Corporate activities and unallocated costs	121		83		(101	)	55
Prior year	3		(106	)	(113	)	27

Financial overview

Corporate and other reported an underlying EBITDA loss of $43 million (2018: $219 million loss). Revenue increased to $121 million (2018: $3 million), predominantly due to a ramp-up of third-party shipping activity.

Exploration

Exploration's underlying EBITDA loss increased to $126 million (2018: $113 million loss), reflecting increased exploration activities across most product groups, in particular, nickel, iron ore and metallurgical coal.

Corporate activities and unallocated costs

Underlying EBITDA amounted to an $83 million gain (2018: $106 million loss), driven primarily by a benefit to EBITDA from the adoption of IFRS 16 Leases as items previously recorded as operating costs are now included within depreciation.

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]	Robert Greenberg [e-mail] Tel: [phone]
Katie Ryall [e-mail] Tel: [phone]	Emma Waterworth [e-mail] Tel: [phone]
South Africa Pranill Ramchander [e-mail] Tel: [phone] Sibusiso Tshabalala [e-mail] Tel: [phone]

Notes to editors:

Anglo American is a leading global mining company and our products are the essential ingredients in almost every aspect of modern life. Our portfolio of world-class competitive mining operations and undeveloped resources provides the metals and minerals that enable a cleaner, greener, more sustainable world and that meet the fast growing consumer-driven demands of the world's developed and maturing economies. With our people at the heart of our business, we use innovative practices and the latest technologies to discover new resources and mine, process, move and market our products to our customers around the world  safely, responsibly and sustainably.

As a responsible miner ‒ of diamonds (through De Beers), copper, platinum group metals, iron ore, coal and nickel ‒ we are the custodians of what are precious natural resources. We work together with our business partners and diverse stakeholders to unlock the sustainable value that those resources represent for our shareholders, the communities and countries in which we operate, and for society as a whole. Anglo American is re-imagining mining to improve people's lives.

www.angloamerican.com

Webcast of presentation:

A live webcast of the results presentation, starting at 9.00am UK time on 20 February 2020, 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.

Group terminology

In this document, references to "Anglo American", the "Anglo American Group", the "Group", "we", "us", and "our" are to refer to either Anglo American plc and its subsidiaries and/or those who work for them generally, or where it is not necessary to refer to a particular entity, entities or persons. The use of those generic terms herein is for convenience only, and is in no way indicative of how the Anglo American Group or any entity within it is structured, managed or controlled. Anglo American subsidiaries, and their management, are responsible for their own day-to-day operations, including but not limited to securing and maintaining all relevant licences and permits, operational adaptation and implementation of Group policies, management, training and any applicable local grievance mechanisms.

Forward-looking statements and third-party information:

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 Resource estimates), 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 availability of transportation infrastructure, 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 permitting and 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 SIX 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 has not been independently verified and presents the views of those third parties, though these may not necessarily correspond to the views held by Anglo American and Anglo American expressly disclaims any responsibility for, or liability in respect of, such third-party information.

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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