Anglo American Doubles Profit Amid Commodities Boom -- 3rd Update

By Scott Patterson 

Buoyed by booming commodity prices and lower costs, Anglo American PLC doubled its net profit in 2017, slashed debt and said it would pay its highest dividend in a decade.

Anglo American's results mark a decisive turnaround from two years ago, when the British mining giant, hammered by plunging commodities and hamstrung by a debt load of nearly $13 billion, began a dramatic corporate downsizing. Now the company is raking in cash and promising to maintain firm discipline on spending, a consistent theme among miners burned by the sharp downturn.

Chief Executive Mark Cutifani said Thursday that Anglo American would avoid a return to the big-spending ways that plunged the company--and most of its peers--into hot water two years ago. Instead, Mr. Cutifani said, the company will focus on continuing to reduce debt and return cash to shareholders.

"Growth has been a dirty word in our industry," Mr. Cutifani said on a call with reporters.

Anglo's cautious stance is typical in today's mining industry. Companies are hunkering down, focused on cutting debt, paying out dividends and holding production in check.

The frugal mantras are novel in an industry once known for its extravagant ways. Miners plunged about $1 trillion into expansionary mining projects during the China-fueled commodity supercycle that began about a decade ago, according to estimates by Sanford C. Bernstein.

"The lessons of the last 10 years sit very comfortably with us," Mr. Cutifani said. He said the business is focusing on "small-scale capital, quick-return projects" such as adding a new ship to its underwater diamond-mining project offshore of Namibia.

Like other miners, Anglo American's fortunes have been tied to rising commodity prices. Over the past 12 months, copper prices have gained about 20% and coal has climbed about 12%, driven by solid demand from China.

Anglo American's net profit for the year ended Dec. 31 was $3.17 billion, up from $1.59 billion in 2016. The company reported solid gains across its commodity portfolio, including copper, platinum, iron ore and coal.

However, despite the big jump, profit missed analyst forecasts of $3.25 billion, according to data provider FactSet. Shares in the company traded down about 4% in morning trading in London after initially opening 3% higher.

Still, Anglo's strong cash returns gave it room to declare a final dividend of 54 cents a share, making an annual payout of $1.02 a share--its biggest since 2007.

Large miners have consistently rewarded shareholders with big dividend payouts this year, rather than announcing eye-popping new projects. BHP Billiton Ltd. declared a dividend of 55 cents a share, up from 40 cents a year earlier. Rio Tinto PLC promised a record full-year dividend of $2.90 a share, up from $1.70 in 2016.

The cautious stance even has deal mavens such as Glencore CEO Ivan Glasenberg holding fire on the megamergers that were a hallmark the previous commodity cycle. In 2013, Glencore merged with Xstrata in an industry-record $29.5 billion deal.

"If nothing becomes available, if we don't get things at the right price, we won't do it," Mr. Glasenberg said on an earnings call this week.

Write to Scott Patterson at [e-mail]

(END) Dow Jones Newswires

February 22, 2018 07:20 ET (12:20 GMT)

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