Anglo American (LON: AAL) reported a significant $1.6 billion writedown on its Woodsmith fertilizer project in the UK, contributing to a loss in the first half of the year. This financial setback adds to the company’s ongoing restructuring efforts, which include shedding four units.
The restructuring strategy, announced in May, followed a successful defense against a $49 billion takeover bid from BHP (ASX: BHP). The 18-month plan focuses on exiting diamond mining through the divestment of its De Beers unit, separating its platinum operations, and selling its coal mines.
Financial Impact and Strategy
The writedown at Woodsmith is attributed to a decision to temporarily slow down the project’s development, which Anglo rescued from collapse four years ago. Last year, the company faced a $1.7 billion hit due to extended timelines and increased costs at the mine, which produces polyhalite, a new type of organic fertilizer yet to be tested at scale.
Regarding its coal assets, Anglo plans a two-stage auction process. However, this has been delayed by a significant fire at the Grosvenor mine in Queensland, Australia. Anglo indicated that the asset would likely resume operations under new ownership.
Chief Executive Duncan Wanblad highlighted the company’s focus on its core assets, stating, “We are transforming Anglo American by focusing on our world-class asset base in copper, premium iron ore, and crop nutrients.” He noted that the portfolio transformation would substantially reduce overhead and other non-operational costs, particularly towards the end of the process to minimize business risk.
Core Divisions and Market Performance
Anglo American’s revenue for the first half of 2024 fell by 8% to $14.5 billion, with underlying profits down 23% to $1.29 billion. The net losses amounted to $672 million, a stark contrast to the $1.26 billion profit recorded a year ago. Approximately 70% of the earnings came from copper and iron ore, the divisions Anglo plans to retain, along with the Woodsmith project.
Wanblad expressed optimism about the company’s operational performance, noting, “We delivered steady volumes and a 4% improvement in unit costs, despite weak cyclical markets for platinum group metals and diamonds.” The results surpassed analyst expectations, largely due to a stronger-than-anticipated performance from the copper division. The interim dividend of $0.42 per share exceeded market estimates by 9%, according to BMO metals and mining analyst Alexander Pearce.
Analyst Christopher LaFemina of Jefferies remarked, “All things considered, this appears to be a positive set of results from Anglo,” but cautioned about the relatively high risks associated with the company’s proposed restructuring plan.
Anglo American reiterated its production and cost guidance for most of its portfolio for 2024 but lowered its production forecast for De Beers for the second time this year, adjusting it to 23-26 million carats from the previous 26-29 million carats.
As Anglo American navigates its restructuring and strategic refocus, the company aims to bolster its core assets while managing financial challenges and market dynamics. The focus on copper, iron ore, and crop nutrients aligns with its long-term vision for sustainable growth and operational efficiency.
Source: Mining.com
