Anglo American's Profit Surge Bodes Well for Miners
Earning season for the world's biggest mining companies started off strong Thursday when Anglo American PLC reported a surge in profit and reinstated a dividend it had slashed two years ago amid a gut-wrenching commodities slump.
Fueled by a resilient rebound in the commodities it mines and sells, the U.K.-listed miner posted net income of $1.4 billion in the first half of 2017, compared with a net loss of $813 million for the same period last year.
"We've got the operations in pretty good shape, there's still a lot more to do," Anglo American Chief Executive Mark Cutifani told reporters.
In a surprise move, Anglo American reinstated its dividend for the first half after having suspended payouts in 2015. The company had previously said it planned to deliver dividends at the end of 2017.
The results are a good sign for other mining behemoths that will be reporting earrings next month, including Rio Tinto PLC, Glencore PLC and BHP Ltd.
Shares of Anglo, which have gained more than 50% in the past 12 months, rose 2.9% in London trading.
The resumption of the dividend is "the big news" at Anglo, Sanford C. Bernstein analyst Paul Gait wrote in a note. The move "should be taken very positively by investors."
Excluding one-time items, Anglo posted a net profit of $1.5 billion in the first half, compared with $698 million a year ago. Revenue rose to $12.1 billion during the first-half from $10.6 billion last year. Net debt fell to $6.2 billion as of June 30, below its year-end target of $7 billion and down from $11.7 billion a year earlier.
Anglo's strong performance is a sharp turnaround from the previous two years, when it and other mining companies were hemorrhaging cash and scrambling to cut costs and divest poor-performing assets. Mr. Cutifani, in the midst of the crisis, launched an ambitious program to slash operations and exit loss-making coal and iron ore businesses, focusing instead on copper, platinum and diamond.
But a surge in coal prices and solid gains in iron ore put those plans on the shelf. At Anglo's Kumba Iron Ore project in South Africa, coal prices surged 151% from last year and iron-ore prices were up 29%, the company said. Overall, the average price for Anglo's commodities gained 30% from a year ago.
Earnings before interest, taxes, depreciation and amortization -- a common metric used by mining companies -- gained in every commodity at Anglo in the first half except for platinum and nickel. A slowdown in Chinese jewelry demand, among other issues, hurt platinum demand. Nickel earnings were hurt by operational issues at Anglo's Barro Alto mine in Brazil, slowing first-half production.
Ebitda at Anglo's diamond giant De Beers rose 3% from last year, spurred by a 21% increase in rough diamond production. But prices for De Beers' diamonds fell 12% from a year ago largely due to increased supplies.
Mr. Cutifani said operational improvements at the company's mines, one of the CEO's primary projects since he took the helm of Anglo in 2013, are a big reason for its strong performance in 2017.
"Every person in the business is now producing 70% more than they were producing in 2013," he said.
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
July 27, 2017 05:00 ET (09:00 GMT)