Anglo American’s debt increased during the past year as it added growth to the company and set its sights on a large acquisition in the fertiliser market.
Anglo is building a large, new copper mine in Peru. The Quellaveco mine is the first new project since the Minas Rio iron ore project in Brazil, which was marked by large cost overruns and delays, putting the company’s balance sheet under pressure.
“We’re in a growth phase,” Anglo CEO Mark Cutifani said on Wednesday.
“We are a growing, but it's not all we're about. It's about quality, improving our margins and growth,” he said.
When he started as Anglo CEO in 2013, the company was mired in debt in a low commodity price cycle and his first five years was spent restructuring the company and reducing debt through the sale of assets, improved mining and productivity, and a more focused approach on the commodity mix.
“We are now in the second phase. There are some really good opportunities to do a bit of growing and to do continuing work through the technical stuff. We're building off those foundations we created in the first five years,” he said.
“I'm really sensitive about making sure people don't hear growth for growth's sake. It's about growing value and cash flows.”
When he was offered the job, Cutifani thought through four five-year phases for Anglo. The next two phases will be about fitting the company into a modern world, where climate change, communities, environmental best practice and new technologies based on minerals will be at the forefront of mining.
“As a CEO you have to think beyond 20 years. I'm in the second block of the four. I probably won't be here for the third and fourth blocks, but I have to make sure the foundation I leave for the next person will allow them to transition into the next step.”
Unlike the sudden and unexpected resignation this week of Chris Griffith, CEO of Anglo American Platinum, the 80%-held Anglo subsidiary, Cutifani said he has no intention of leaving the group any time soon.
“I have a good relationship with the board I think,” he said. “We continue to think about succession planning, as you should.”
Anglo reported posttax profit of $4.6bn (about R69.46bn) for the year to end-December 2019 compared to $4.4bn the year before, despite revenue growing by 8% to $29.9bn.
Anglo paid a total dividend of $1.09 per share for 2019 compared to $1 a year earlier. A final dividend of $0.47 was declared, representing 40% of underlying earnings.
Net debt at the end of the year was $4.6bn compared to $2.85bn. Gross debt grew to $11bn from $9.4bn. Cash flow increased to $9.3bn from $7.8bn. Capital expenditure grew by $1bn to $3.8bn.
Anglo has a net debt to earnings before interest, tax, depreciation and amortisation (ebitda) ratio of less than 0.5 times, a level the company hopes to maintain as it advances its growth strategy.
Analysts noted the net debt of $4.6bn was better than the market consensus expectation of $5bn.
Anglo has launched a R7.6bn cash bid for UK-listed Sirius Minerals, a company developing a polyhalite mine in the UK. Polyhalite is a fertiliser product.
Anglo is nearing the end of a $1bn share buy back, with $950m spent so far and the balance to be completed during March. The buy back contributed towards the debt.
Anglo will update the market in April on its future involvement in thermal coal production in SA and Colombia. Cutifani has said the business is small within the portfolio and would better suit another company.
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