Anglo American : 2020 Annual Results conference call transcript

2020 Full Year Results

Thursday, 25th February 2021

2020 Overview and Look Ahead

Mark Cutifani

CEO, Anglo American

Welcome everyone.

The theme for our presentation is keeping our feet on the ground. While I'm a believer in the strong fundamentals to demand in our industry and the likely constrained supply for many of our products, the last thing I want to see in our team is anyone lifting their heads and forgetting about our focus on our continuing business transformation journey. We believe we have a portfolio of assets and opportunities that play favourably into the big global themes around climate change, circular economy, and the growing importance of material sciences in finding new and exciting uses for our metals and minerals. We've been strategic in our outlook and positioning for a number of years and today's world continues to confirm we are more than ever, positioned to improve and grow our business both in the short, medium and the longer term.

Cautionary Statement Please read carefully.

Driving towards a Safe & Healthy Future

On safety, health, and environment, for us, the improvement journey continues.

Safety

Over the last five years, we've recorded a 40% reduction in total injuries and an 82% reduction in fatal incidents. Despite a couple of serious incidents early in the year, it was our best ever safety performance as we continue our journey towards zero. No year is a good year if you've lost someone in your operations so we still have to get there, but we're getting very close.

Health

Secondly, on health cases, those issues are made up of less obvious or immediate hazards or risks in the business. We're also heading in the right direction. Again, significant improvement since 2013, about 95% reduction so we're very proud of that performance.

Environment

Our approved planning and operating disciplines continue to support incident reductions across the Group. Making sure we don't get that call in the middle of the night requires constant focus, appropriate technical design, operating disciplines, and an open and effective governance process to ensure we're doing the right things, the right way, all the time.

We still haven't got to a point where we've eliminated all of our incidents. But we're working very hard to eliminate all of those things from the business. We've made significant progress, but we're certainly not yet where we want to be.

Good Progress on Interim ESG Targets

We continue to make good progress on our critical targets. Our energy efficiency improvements have also supported our greenhouse gas savings. And as you can see, we'vemet both improvement targets for 2020 versus our 2016 baseline. Next step is an absolute reduction of 30% on both by 2030.

Social Way is our social standards and practices package, per our broader Operating Model approach to business - you can see, we are approaching full compliance across the group. Now, as you know, these things evolve and develop over time. And so, we have now designed the third generation Social Way package that will be used as a new and higher bar for community and social engagement.

We've still got a long way to go. We haven't yet got our community relations where we want them to be. But again, we are working very hard in all of our communities and across all of our sites on this particular aspect of the business. The new package goes beyond the industry benchmarks and has been imaginatively called Social Way 3.0. So, a new industry standard with a title that only an engineer could love.

Comprehensive COVID Response

Despite the encouraging vaccine progress in many countries, it is clear the pandemic and the challenges for most are not going away quickly. Our responsible holistic approach, including supporting our communities, continues. And this broader community approach is an approach we share with many of our industry colleagues, particularly in jurisdictions where government support is less equipped to deal with these types of issues. And we have been taking these initiatives further, as we have understood that when people in communities are under stress, domestic, and gender-based violence issues can grow. So we're working with our community leaders and governments to make sure we're dealing with both the direct and indirect impacts of Covid.

The lives and livelihoods of our employees, their families, and the communities are the priority. And we've managed the strong operational recovery at the same time. We've been strengthening and reinforcing protocols to help deal with second waves affecting our operations as well. Our focus on people returning to work post-Christmas has been very important and we've seen some impacts, but they're being managed effectively. And in anticipation of that post-Christmas surge, we put in extra levels of testing to identify and mitigate risks. Based on our latest data, we expect most of the site impacts will be negligible as we move into March.

On demand for products, despite lockdowns and limitations, our order books are generally pretty full. And on diamonds, the demand bounce has been quite solid. So the early signs have been encouraging, but we do have some residual risks that will probably remain in some jurisdictions, probably to the mid-year. But it's not significant, it's being managed and the teams have done a great job in managing all the dimensions of the Covid-19 issue.

FY 2020 Results

On results, an encouraging finish after a tough start to the year. Despite the first half issues, we finished the year running around 95% of full production capacity. But even more importantly, and despite lower volumes, our unit costs and our capital spends were held in tight control.

Along with the improving prices, we saw our second half EDITDA recover to $6.5 billion, our highest for a six month period since 2011. This recovery and the discipline that have gone with the learning from the Q1 disruptions have put us in a good position going into 2021.

Earnings per share: $2.53 for the year, or $1.81 in the second half. The full year return on capital employed at 17% was impacted by our higher capital base, with spending on Queliaveco and the Sirius acquisition impacting the denominator for the calculation. We will show pre and post new project spend when we report these numbers going forward. However, the second half ROCE number was a pleasing 24%.

Solid Recovery in H2

Diamonds

De Beers has seen salespicking up through the fourth quarter and continuing into 2021, with Sight 1 in January delivering our highest Sight sales for three years. The team will continue to manage production levels to demand and have kept costs very well managed through the process, with a 10% unit cost improvement year on year, despite 18% lower volumes. Given our broader restructuring, we expect to see more unit cost improvements through 2021. Bruce and the guys have done some really hard yards through the year, and we will continue the work through 2021.

Copper

In copper, we've delivered consistent performance and we've navigated the twin challenges of water constraints and Covid, with production hitting target levels despite the challenges. The effective implementation of social distancing in Chile and Brazil has been a model for all of our operations, with work on water and securing alternative sources in Chile being a real winner for the year.

PGMs

On PGMs, a pleasing mining performance and processing production back to 100% levels by year-end. At the same time, the re-installed A unit at the ACP has been running very well since late November, after a very careful and well-managed commissioning process by Natasha and the team. We are looking forward to a better year of both mined and refined production. And with current strong spot prices, we're very well-placed to deliver some strong margins and cash generation.

Bulks

In Bulks, Minas-Rio has continued to improve, another record performance in a year when we were down for one month for the planned pipeline inspection, which makes it a really credible performance. At Kumba, despite lower production, largely as a result of Covid, unit costs were 6% lower at $31/tonne. It was a similar story in our South African thermal coal operations. In met coal, the spat between Australia and China still remains an issue, although the pricing gap is starting to close as the market adjusts to new deliveries for new customers.

In addition, we've had our operating challenges. Most recently, the current longwall panel at Moranbah has been moving through some tough ground and last Saturday night we recorded a high carbon monoxide gas reading in the waste areas. Carbon monoxide is a result of latent heating in the goaf area. As per our protocols, we withdrew the workforce and we commenced monitoring the gas from the goaf since that time. And by the end of the shift, the levels had