Anglo American CEO Mark Cutifani. Picture: BUSINESS DAY
Anglo American CEO Mark Cutifani. Picture: BUSINESS DAY

Anglo American came under criticism from analysts for being a “bit light” on its annual return to shareholders as it stuck rigidly to its recently unveiled dividend policy. 

Anglo, a major diversified mining company, has shaved $10bn off its debt in three years as the board implemented a tough turnaround strategy with a far smaller but more productive asset base with a unique offering of diamonds, platinum group metals (PGMs), copper, iron ore, coal and nickel. The company is also heading into a period of spending on growth at its Quellaveco copper project in Peru. 

Anglo declared a final dividend of $0.51 per share, equivalent to the top end of its dividend policy of paying shareholders up to 40% of underlying earnings in the second half of the year to end-December. The final dividend brought the total return for the year to $1 per share.

“It’s a bit churlish maybe to criticise a company for doing what they said they were going to do, but a 40% payout given the strength of the balance sheet does look a bit skinny compared to your peers,” said Dominic O’Kane from JP Morgan during a results presentation.

Anglo had $500m of cash on its balance sheet from the sale of a stake in Quellaveco to Japan’s Mitsubishi and which would be invested in the project ahead of Anglo spending its own capital, said Anglo CFO Stephen Pearce.

Up to $1.5bn would be spent on Quellaveco during 2019, with Anglo spending up to $600m of that.

“We have a view in front of us of what we want to spend and we factored that into our 40% payout ratio,” Pearce said, adding that the board would consider additional payouts because the company was ahead of its debt reduction plans.

Net debt fell 37% to $2.8bn during 2018 compared with the previous year.

“We will run a more conservative balance sheet than we have … but we will consider all forms of excess returns to shareholders,” Pearce said.

Anglo will have to spend up to $2.7bn on Quellaveco in total.

Anglo posted a post-tax profit of $4.37bn, up from $4.06bn the year before.

“Anglo continues to trade at a discount to peers BHP and Rio. Given the strong operational performance, we continue to see this discount closing. Given the low level of net debt, we see a rising possibility of a special dividend being declared at the interim results,” said Macquarie’s Grant Sporre in a note.

The company would not look for external acquisitions to grow its portfolio, but it would rather adopt a cautious approach in developing assets within its portfolio, such as the $5bn Quellaveco copper project at which Anglo is sharing the project and capital risk with Mitsubishi, which has a 40% stake, said CEO Mark Cutifani.

There are growth projects either under way or lining up in its subsidiaries, such as the $2bn Venetia underground diamond mine in SA for 85%-owned De Beers and studies at 80%-owned Anglo American Platinum, the world’s largest platinum miner.

But for Anglo directly the only growth project of any size was Quellaveco, Cutifani said, adding that dividend payments had to be weighed against spending on building the mine over the next few years and other smaller projects that had low capital requirements and quick payback periods.

seccombea@businesslive.co.za