Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
* Share price eases after gains over last year
* Supports independent body to oversee tailings dams
* Still sees Brazil as favourable place to mine
* Open to considering buybacks ‘at right time’ (Updates with share price, CEO comment, analysts)
Anglo American reported on Thursday better than expected core earnings, driven by higher copper and coal prices, but said no financial performance was “worth a life” and its biggest challenge was eliminating danger at its mines.
The mining industry is under scrutiny following the collapse of a dam operated by Vale in Brazil in January, which has rocked confidence in the sector just when balance sheets had been repaired after the commodities crash of 2015-16.
“Our determination to reach and sustain zero harm is our most pressing challenge.”
Of the major companies, Anglo American was one of the worst hit by the commodity market slump and has made the strongest recovery.
Its shares have risen around 14 percent this year and were trading down 0.5 percent by 1030 GMT on Thursday as some analysts said the payout to shareholders of $0.51 a share was low. Other major miners have announced buybacks to keep investors on side.
Anglo American’s underlying 2018 EBITDA (earnings before interest, tax, depreciation and amortisation) of $9.16 billion was up 4 percent from $8.82 billion a year earlier and beat analysts’ average estimate of $8.7 billion, according to Refinitiv IBES data.
As investors focus on sustainability, CEO Mark Cutifani said Anglo American was an industry leader and backed calls from BHP earlier this week for an independent body to oversee the tailings dams that store increasingly high volumes of waste generated by mining.
He said Anglo American’s accident rate was at a record low as the rate of recordable incidents had fallen to 2.66 injuries per million hours worked. The goal, however, is zero harm.
“No degree of financial performance is worth a life,” Cutifani said in a statement. “Our determination to reach and sustain zero harm is our most pressing challenge.”
“I think we’re on the right journey, but we need to get there quicker,” he added on a call with journalists.
In 2018, five Anglo American workers died in safety incidents. The company has also suspended operations at a coal mine in Australia after one worker died and several were injured on Wednesday.
Cutifani said on Thursday investigations continued into the cause, which he said may have been “related to health issues”.
Anglo American’s profitability was driven by higher prices for some of its commodities, notably copper and coal, and efficiency improvements.
Copper is particularly in demand for electrification and some of Anglo American’s share price gains have resulted from its copper projects in Latin America.
It is developing a mine in Peru and is exploring in Brazil, where Cutifani said Anglo was assessing drilling results that have struck copper.
Asked whether the Vale dam disaster would make it harder for miners to operate in Brazil, Cutifani said tailings legislation would be tightened but Brazil should still be attractive.
“We don’t expect the changes to be such that we change our view on Brazil,” he said.
On the possibility of buybacks, Stephen Pearce, Anglo’s finance director, said he was open to considering them “at the right time”.
Analysts said Anglo’s final dividend of $0.51 per share was not a generous payout compared to its rivals.
“As a shareholder you’d be forgiven for asking when you were going to see the benefits of the turnaround Mark Cutifani has manufactured at the mining giant,” Nicholas Hyett, equity analyst at Hargreaves Lansdown, said in a note.
(By Arathy S Nair, Barbara Lewis and Samantha Machado; Editing by Emelia Sithole-Matarise)
