Anglo American launches $1bn share buyback
On the back of a 46% increase in interim profit, Anglo also pays a higher dividend, underpinning its faith in its operational turnaround
Anglo American, one of the world’s leading diversified mining companies, is returning $1.8bn (about R25bn) to shareholders via a dividend and a share buyback after a surge in interim profit driven by iron ore.
Anglo, which is based and listed in London as well as the JSE, reported a 46% increase in attributable profit to $1.9bn for the six months to end-June. Revenue climbed by 8% to $14.8bn.
The interim results were the best since 2011, said CEO Mark Cutifani.
Iron ore's contribution to $5.5bn of earnings before interest, tax, depreciation and amortisation (ebitda) was $2bn, an increase of more than four times the $454m it generated last year.
The miner recorded an interim dividend of $0.62 per share compared to $0.49 in the same period a year earlier, equating to a return of $800m, an increase of $200m on a year ago.
On top of the dividend, which is in line with the policy of paying out 40% of underlying earnings, Anglo unveiled a $1bn share buyback in London and Johannesburg to reduce the number of shares in issue and increase the value of those left on the market.
This is the first time Anglo has conducted a share buyback since the $4bn buy back in 2006, and the first since dividends resumed in 2017. The programme will run until the end of March 2020.
“The buyback comes as a surprise, but a welcome one,” said RBC Capital Markets analyst Tyler Broda.
He said the $1bn buyback accounts for 2.8% of the Anglo's current market cap and should help bolster returns through the rising capital expenditure and growth period of 2020-2022.
“This indicates confidence — especially given the current price environment — that there will be excess cash flow beyond the growth capex for the portfolio,” Broda said in a note.
Anglo's shareholders had different requirements and the buy back was one of the schemes they wanted to see, said finance director Stephen Pearce.
It was also a way for Anglo to run down its $5.1bn of cash held in SA, with the $1bn buy back split between the shareholder registers in London and SA, with 35% of shareholders on the latter.
Since resuming dividends in mid-2017, Anglo has paid shareholders $3.4bn as the group sold assets and improved operational performances at its suite of assets in iron ore, platinum group metals, diamonds, copper, nickel, coal and manganese.
“The statement around dividends and our commitment to the buyback is an important one about where we, as a board and executive, see the business. We will look at playing the right balance on returns on capital and returns to shareholders,” said Cutifani.
“For us, it’s not about a short-term sugar rush. It’s about getting that balance right and creating the world’s best mining business over the short, medium and long term.”
Anglo's operations generated cash of $4.2bn, a $500m improvement year-on-year, with capital expenditure of $1.4bn and higher taxes of $1.1bn offsetting that increase.
Anglo had cash of $7.1bn at the end of the period, up from December’s holdings of $6.5bn.
Included in Anglo’s growth portfolio is the $5bn Quellaveco copper project in Peru and the construction of a new ship for mining diamonds off the Namibian coast, as well as the Lightbox production plant in Oregon to make synthetic, gem-quality diamonds.
Anglo owns 60% of Quellaveco, which it shares with Japan's Mitsubishi as the remaining shareholder.
Total capital expenditure for 2019 is pegged at up to $4.1bn.