Anglo’s bullish production forecasts boost share price
Group shows the benefits of being more streamlined than five years ago
Anglo American’s share price soared in London and Johannesburg after the diversified miner released a bullish production outlook for the next three years and tightly controlled costs, raising hope for improved dividend payments from higher cash inflows.
Anglo would beat its 2018 production forecast by 2% while costs would be 5% lower, CEO Mark Cutifani said on Tuesday. He outlined targets for coming years as the group brings its stalled Minas Rio iron-ore mine in Brazil back into production and advances its copper growth strategy.
Anglo shares at its primary London listing rose 5% and in Johannesburg, its historic home, its stock increased 3% as the market digested a year-end investor update to analysts that detailed increased production over the next few years.
The increased output for 2018 was driven by copper, platinum group metals and diamond production, while costs will be 5% lower than expected.
In the next two years, production will rise 3% and 5% respectively, while costs will remain flat in 2019 as inflation is offset by production improvements.
Myles Allsop, a UBS analyst, said the capital-expenditure forecast “was one number that was a bit of a surprise. It was higher than we were expecting.”
Anglo said its sustaining capital expenditure would be $2.7bn for 2018, rising to $3.2bn a year for the following three years and then settle in a range between the two numbers in the longer term.
The previous guidance for the long-term capex was $2.6bn-$2.9bn, but the inclusion of the Quellaveco project in Peru pushed the number up.
The sustaining capital expenditure numbers are higher because of a bigger operating footprint, which includes the Quellaveco project, said Anglo CFO Stephen Pearce.
The $5bn Quellaveco mine, which is 60% owned by Anglo and 40% by Japan’s Mitsubishi, will lift Anglo’s copper production to 1-million tons a year from 660,000 tons in 2018.
Stay-in business capital of $2.5bn in 2018 and $2.7bn for the next three years is about a third lower than it was five years ago, showing a “more efficient use of capital”.
“You don’t get additional production for free,” Pearce said.
Anglo’s sustaining expenses have also decreased because the size of its asset portfolio has nearly halved since 2012 as the group sold mines towards repaying hefty debt incurred largely by the purchase and construction of the Minas Rio iron ore mine in Brazil.
There were a lot of questions about Minas Rio, a project that cost Anglo at least $13bn to buy and build and that has yet to win favour from analysts. Minas Rio was suspended in 2018 when the pipeline sprung a leak.
Anglo expects the mine to return to production in 2019.
Cutifani said Anglo would not trigger another capital-intensive project such as Quellaveco because it was “not the right thing at the moment” but the company would keep spending on its assets in a highly disciplined way and continue to drive down costs.
A pipeline of yet-to-be-approved projects in marine diamond extraction, copper and metallurgical coal could come into production after 2021, with quick capital paybacks of four or fewer years and that have high rates of returns.
The most expensive is a $1.1bn project at the Collahuasi copper mine to add 80,000 tons copper from 2024.
Correction: December 12 2018
This story has been corrected to reflect Peru as the country in which the Quellaveco project is located