Anglo American : 2022 Interim Results conference call transcript

Anglo American

2022 half year results

Thursday 24 February 2022

Anglo American 2022 Half Year Results	Thursday 28 July 2022

Introductory Comments

Stuart Chambers

Chairman, Anglo American plc

Slide 2 - Introductory comments

Good morning everyone and a warm welcome to our 2022 half year results.

I'm delighted that we are here in person with some of you this morning, but also welcome to everyone joining us on the phone and webcast. Today I am also pleased to be joined by Duncan Wanblad, our Chief Executive, at his first results presentation since his appointment at our AGM, in April.

You will have seen our numbers go out a few hours ago…

And while this is our second best six monthly financial performance ever, I think internally we all believe we could have done better and there is room for improvement operationally in the second half. Duncan will expand on that shortly.

As we all know the macro environment is most certainly more challenging now than six months ago, but nonetheless the business is, we believe, set up well and the medium and longer-term outlook for mined products remains very favourable indeed.

It is very pleasing to have commissioned the Quellaveco copper project on time and budget and we now look forward with confidence to the ramp-up to full production levels.

The dividend announcement was in-line with our 40% pay-out policy and I trust in-line with expectations.

I won't go through the various Board changes - they are laid out on page 18 of the press release.

With that, I will hand you over to Duncan Wanblad, Chief Executive and Stephen Pearce, Finance Director, who will update you on the progress we have made across the group during the first half of 2022.

H1 2022 overview and look ahead

Duncan Wanblad

CEO, Anglo American plc

Slide 3 - Cautionary statement

Thank you Stuart.

Good morning ladies and gentlemen.

Welcome, good to see you and thank you for joining us this morning for this, my first Anglo American results presentation as Chief Executive.

I encourage you to read this slide carefully in your own time.

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Anglo American 2022 Half Year Results	Thursday 28 July 2022

Slide 4 - H1 2022 results agenda

You will be familiar with how we structure these presentations.

I will give an overview of our first half performance.

Stephen will then step in and take you through the detail of the numbers.

And then I will talk about how we are positioning the business for the longer term.

Slide 5 - Focusing on our strategic priorities

They say that timing is everything, and it's been a busy 3 months since I took up the role given what is going on in the world.

For my part, I have invested a lot of time leading up to April and since engaging with our leaders and employees across Anglo American, and more broadly with customers, business partners, shareholders and many other stakeholders, and from that I have distilled what I see as my 4 near term strategic priorities - and these are Safety; Stability; Sustainability; and Growth.

Safety comes first - always - and we recognise that safety is also tied to stability. We have to ensure our operating platform is stable, with work being done in a planned way to keep our people safe and for the business to perform at the right level; from that foundation we can then build further performance improvement. So, our focus is on doing the right things at the right time.

It is clear that over the last two years we have had to adjust many of our operating routines, for the right reasons, during covid - and we have to re-adapt ourselves to what is probably a new normal. Those changes have affected our safety performance and we are addressing that. And they have also disrupted our Operating Model - likewise, we are very focused on reinforcing adherence to drive stability.

Following on from that, we are continuing to build out our sustainability ambitions - this includes delivering the projects that we have under way as part of our Sustainable Mining Plan - including renewable energy across our operations, biodiversity, water management, Social Way implementation; and putting greater definition to our pathways to operational carbon neutrality and then executing and delivering to that plan.

And lastly, growth: delivering our very strong pipeline of organic growth projects. On that front, it's great to have achieved a major milestone in the last couple of weeks with first copper concentrate coming through at Quellaveco. I will come back to Quellaveco a little later on.

Panning out for a moment, and despite plenty of uncertainty and volatility in the macro world around us, we remain very positive indeed about the medium to longer term outlook for the metals and minerals that we produce and we are well positioned to again grow the value of our business over the next several years.

Slide 6 - SHE performance - focused on a safe & healthy future

As I said, safety is top of mind as we strive towards zero harm for every one of our employees every day.

I am sad to report that we have had 1 fatality during the course of this year. I also hasten to add that we have increased the number of fatalities that we recorded for last year because of an incident at our PGM operations where a colleague tragically passed away this year from injuries that they sustained in that incident.

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Anglo American 2022 Half Year Results	Thursday 28 July 2022

After many years of continuous improvement in injury rates, we plateaued through Covid and regrettably ticked up a bit again this first half. This is due to the operational changes for Covid that I mentioned a few minutes ago and we are very focused on reversing this trend.

More pleasingly, we have recorded zero new cases of occupational health issues in H1 - which is a first and we are determined to try and keep it there. We will continue to improve both work environments and controls.

Our hard work on planning and controls is also reflected in the lack of any level 3 or above environmental incidents. Again very pleasing and our aim is to maintain this performance and improve it further.

Slide 7 - Striving for a healthy environment & thriving communities

Looking at key components of our sustainability performance….

For both energy & GHG emissions, our H1 performance was mainly due to the lower production levels in steelmaking coal.

We continue to make progress on our longer term targets - and more to come on that later.

As far as the Social Way is concerned:

Very strong progress on the implementation of our Social Way 3.0 management system.

This is a much higher bar than any that has been set before in the industry, and we are making decent progress in the roll out. We measure our progress annually, so no H1 number for you, but the 49% implementation of the foundational requirements in 2021 already represents a higher overall level of performance than the 96% that we reported in 2019 against our old Social Way. The wedge on the right hand side shows you broadly what we expect for 2022.

And this Social Way programme underpins a number of our ambitious 2030 Sustainable Mining Plan targets - for instance, 5 jobs offsite for every onsite job, and top performing schools; thus demonstrating our commitment to partnering with our host communities and governments.

We are, I believe, and we want to continue to be, The partner of choice.

Slide 8 - Operating context in 2022

Looking at operating conditions for the first half - a number of external challenges held us back, particularly in Q1.

None of these will surprise you, but in aggregate they have some effect.

We have been working through these and I'm glad to see improvement in Q2 and still further momentum into Q3. So, we expect a stronger 2nd half of the year.

As I mentioned, we are getting better at learning to operate as Covid becomes endemic. Rainfall is a regular feature of the first half of the year but the extremes we saw outpaced all reasonable forecasting; we hope to be through that now for the second half, albeit conversely hoping for more rain and snow in Chile (decent amount of precipitation there in recent weeks).

Supply chains and inflation - I won't dwell on, you know the story, but these are a feature for the time being and we are working hard to mitigate, with weaker producer currencies helping out on the unit costs.

Again, looking beyond the current challenges, we see a very positive demand outlook - more of that later.

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Anglo American 2022 Half Year Results	Thursday 28 July 2022

Slide 9 - H1 2022 summary

Stephen will take you through the detailed numbers but, as a summary, EBITDA of $8.7bn and an EBITDA margin of 52% is testament to the quality and diversification of our portfolio. $8.7 billion is our second highest EBITDA for a half year, so a good outcome, but could have been better.

Production was lower in the first half compared to the same period last year. We did see an improvement during the second quarter and expect this momentum to carry on through the second half.

Unit costs were impacted by the combination of the lower volumes and cost inflation.

As I said earlier, safe and stable operations are our number 1 and 2 key priorities in the near term. We are absolutely focused on those.

Slide 10 - H1 2022 - operating performance

Stepping through each of our businesses in turn:

De Beers performed strongly:

• Demand recovery was very strong, especially in the US and we increased production to reflect that. Rough prices are up 17% since the start of the year and 45% from the lows of Covid. We are of course keeping a close eye on the macros and the impact that may have on demand for polished.
• Russia-Ukrainewar has accelerated consumer focus on provenance and traceability - no doubt about that. Our proprietary TracrTM blockchain programme offers a clear solution to that particular matter and you will have seen that we have put TracrTM on steroids, so that we can provide source assurance for our diamonds of ~0.3 Ct polished equivalent and upwards. This is a clear differentiator for us.

At Copper - great work from the team in mitigating the expected lower ore grades and water constraints, with production tracking in line with our plans for this first half.

• Decent amounts of snow have been falling in the Andes around Los Bronces, which is great news and should help alleviate some of the severe drought conditions affecting the area.
• We have also had some encouraging early results from the dry stack tailings technology at the El Soldado test plant - with up to 85% water release.
• The Los Bronces licence rejection was disappointing - but we remain confident that we will get a pragmatic solution through the process that will be beneficial to all stakeholders in the country.
• Nickel continues to perform well.

At PGMs:

• Great results at Unki and Mototolo, but offset by wet weather impacting Mogalakwena in Q1. We are in the process of building greater operational stability back into the open pit.
• Processing performance has also been good, but at a more normalized operating rate, after the inventory catch-up from the ACP last year.
• I would also like to commend the team for a successful labour negotiation, a good outcome for all and agreed with no impact on production - furthermore we have a 5-year contract, rather than 3- year industry norm.

So good performances in diamonds, base metals and PGMs.

Things a little more difficult in Bulks:

• Both iron ore businesses were significantly impacted by wet weather.
• We had a blasting misfire incident at Kolomela that has taken us the best part of three months to work through. We obviously had to do that in the safest way and we absolutely did that without any compromise.

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