Finweek English Edition – August 15, 2019

in brief in the news

By David McKay

10 finweek 15 August 2019 http://www.fin24.com/finweek

Mark Cutifani

CEO of Anglo

American

After announcing a 46% increase in interim profit to end-June, Anglo American will be returning about R25bn to

shareholders via a dividend and a share buyback. And it seems that the miner might have more in the tank.

Anglo’s remarkable turnaround

would be a “one-off”. Given that elevated iron ore prices

played an important part in Anglo’s interim earnings, a

connection is being made between Anglo’s performance

and the sustainability of the R9.9bn dividend paid by its

70%-owned Kumba Iron Ore subsidiary, listed on the JSE.

The Brumadinho tragedy at the beginning of this year

in which a tailings dam burst at the Brazilian facilities

of that country’s state-owned mining company, Vale,

resulted in it producing only 320 million tonnes (Mt) of

the 380Mt in iron ore it would normally sell. While 15Mt

to 20Mt of opportunistic production has entered

the market from other sources, the deficit in iron

ore production seems here to stay, at least for the

remainder of the financial year, said Timo Smit,

Kumba’s marketing director.

Analysts agree: “Although we expect iron ore

prices to ease lower from current levels, we are above

consensus, and in the environment of robust pricing, we

see Kumba continuing to pay a healthy dividend, currently

yielding an average of about 10% over the next two years,”

said Grant Sporre, an analyst for Macquarie.

In any event, a weakening in the iron ore price will be

offset by the share buyback which provides a defensive

underpin to the earnings outlook. It’s also not just iron ore

adding strength to Anglo’s arm: The presence of platinum

group metals (PGMs) in the Anglo portfolio via its 80%-

stake in Anglo American Platinum (Amplats) as well as

De Beers, offers balance in commodity exposure and “...

a differentiated investment case [that] will likely remain

a

nglo American’s remarkable turnaround

under CEO Mark Cutifani has been rightly

applauded. Now, however, there are the

inevitable questions as to whether the

$800m interim dividend payment announced earlier this

month, supplemented by a surprise $1bn share buyback

programme, represents an apogee for the firm. As asked

by analysts: Is this “as good as it gets” for Anglo?

Apparently not

Investment banks, including JP Morgan Cazenove,

HSBC, RBC Capital Markets, Morgan Stanley, and

Goldman Sachs think Anglo American has more

in the tank, although it does depend on the usual

imponderables such as the strength of the iron

ore market, and whether Anglo can tackle the 3%

overall shortfall in first-half production.

There are also questions regarding how long it

can take advantage of technical advances born of

Cutifani’s strategy to rebuild the group’s ability to mine

efficiently, said to have been lost under predecessor

Cynthia Carroll. This risk is ultimately the question of how

long Anglo’s efficiency and cost gains can remain ‘locked

in’ before competitors catch up.

First, though, the payout
Asked whether the buyback could become a regular
occurrence in Anglo’s capital allocation framework,
Pho Stephen Pearce, the group’s chief financial officer, said it

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