Anglo plans $1 billion buyback after bumper iron ore profit

Saldanha Bay, Western Cape, South Africa. Image courtesy of Anglo American

Anglo American Plc plans to buy back up to $1 billion of shares after the diversified miner reaped bumper profits from its iron ore business, more than offsetting declines in diamonds and copper.

Anglo is the first to report earnings among the handful of giant miners that produce iron ore and investors have been preparing for big windfalls. The steelmaking ingredient surged to the highest in more than five years after a deadly Brazilian dam collapse and operational setbacks in Australian caused a supply shock.

For Anglo, the iron ore rally has meant surging profit from a commodity that’s traditionally been a weak spot

The buyback represents a shift for Anglo, which has been focused on repairing its bruised balance sheet and investing in growth while the world’s biggest producers handed massive amounts of money back to shareholders in recent years. The company’s net debt stands at $3.4 billion.

Cutifani said that after paying more than $3 billion in dividends since restarting the payments in 2017, and investing in growth, the buyback was a way of rewarding shareholders who wanted a different kind of return.

“For us it’s not about a short-term sugar rush,” Cutifani said. “It’s about getting the balance right and creating the world’s best mining business over the short, medium and long term.”

Anglo shares rose as much as 2.1% in early trading and were 1.7% higher at 8:05 a.m. in London.

Key figures

  • First-half underlying Ebitda jumped 19% to $5.45 billion.
  • Earnings from the iron ore unit quadrupled to $2.04 billion.
  • Anglo declared a regular interim dividend of 62 cents a share, a 27% increase on a year earlier.

For Anglo, the iron ore rally has meant surging profit from a commodity that’s traditionally been a weak spot. After missing out on huge mines in Australia 20 years ago, the company has been scrambling to catch up, including by building the financially disastrous Minas Rio mine in Brazil.

Still, the outlook for iron ore may not be quite as rosy, with analysts including Liberum Capital Markets suggesting prices may have peaked. Fears of a global shortage are easing after Vale SA got permission to restart some operations in Brazil and as port stockpiles in China rise.

The market remains tight for now and the company sees the premium for its high-quality product rising, Chief Executive Officer Mark Cutifani said on a call.

Problem child

While iron ore is the star of Anglo American’s results, the company’s diamond unit has turned into a problem child. Earnings from De Beers dropped 27% in the first half amid weak demand, too much supply and as customers struggle to make a profit.

Anglo is now targeting full-year cost and volume improvements of $400 million in 2019, down from an earlier target of $500 million, after adjusting for lower diamond production.

De Beers last week trimmed its diamond-production plans for this year as the company seeks to match supply to slumping demand.

(By Thomas Biesheuvel)


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