Anglo American
On the back of the best half results since 2011, Anglo American has renewed its confidence and commitment to Australian coking coal, taking Aquila off the shelf, and will launch a $1b share buyback program.
AUSTRALIA’S second largest coal producer, South African miner Anglo American, has reaped the benefits of the high price of coking coal as China’s steel industry continues to boom.
The company has announced that, after 10 years on the shelf, it would revive the Aquila project, reconfirming its commitment to coal in Australia, and extending the life of the Capcoal operations out to at least 2028.
Anglo American has also announced a $1b share buyback program after posting its best first half results since 2011.
Internationally, the board has seen two new additions to its non-executive team, and Nolitha Fakude has moved into the executive role of Anglo American chairman of South Africa’s management board.
Aquila
Anglo American announced it will revive and expand its operations in Central Queensland at the Aquila project, which would extend the life of Anglo American’s existing Capcoal underground operations by six years out to 2028, expanding the Capcoal complex.
The complex consists of the Capcoal open cut mine, the Grasstree underground operation and infrastructure, and is a joint venture with Mitsui & Co Ltd (70:30 respectively).
More than 10 years after it was suspended because of concerns around the global financial crisis, the JV partners would invest a total of about $400m.
Anglo American’s share is expected to come in at US$226m, and development work is expected to begin in September of 2019, with first longwall production predicted for 2022.
Anglo American’s Metallurgical Coal chief executive Tyler Mitchelson said that Aquila was an important growth project for the business, and would provide ongoing employment opportunities for the company’s Grasstree workforce as the mine reaches its end of life.
“Aquila will have a total average annual saleable production of around 5mt of premium quality hard coking coal, used in steel production for critical building and infrastructure around the world,” Mr Mitchelson said.
“The mine will also continue to adopt Anglo American’s FutureSmart Mining program, which applies innovative thinking and technological advances to address mining’s major operational and sustainability challenges.
“Anglo American has been at the forefront of embracing innovation to drive the next level of mine safety and performance, and our Aquila Mine will be developed as one of the most technologically advanced underground mines in the world.
“The accelerating pace of technological innovation, particularly in the digitalisation, automation and artificial intelligence areas, are opening up opportunities for the mining sector to be safer, more productive and sustainable.”
The project is subject to substantial approval by Mitsui.
Chief executive of bulk commodities, Seamus French, said that the project would benefit from low capital intensity and the use of existing infrastructure and systems from the Grasstree mine.
“Aquila offers us a high margin six-year life extension to our Grasstree mine, with an average annual saleable production of 3.5mt (attributable) of premium quality hard coking coal at a real, post-tax IRR of more than 30pc, and an EBITDA margin of 40pc at consensus long term prices,” he said.
A hard time for thermal
FOB thermal coal prices were down to 88/t from $104/t, and exporting at $88/t down from $99/t in 2018.
The company said that thermal coal prices fell sharply as lower gas and higher carbon prices significantly affected the European coal demand, while coal demand in Japan was muted by an increase in gas fired power generation and improved nuclear availability in South Korea.
Prices were further impacted by Indonesian and Russian product that led to a higher global inventory, as the supply of lower quality coal and delays to customs clearances at Chinese ports widened the discounts between low and medium quality coals.
US$1B share buyback
Anglo American announced that it would return up to $1b to its shareholders through an on-market irrevocable and non-discretionary share buyback program.
It will be executed in two tranches of up to $500m each, and Anglo American has given instructions to Morgan Stanley International in relation to the first tranche.
Anglo American had previously shied away from this sort of shareholder return because of its focus on organic growth, but since Anglo American chief executive Mark Cutifani took the reins six years ago, the company had streamlined its operations, slashed costs and improved productivity.
Mr Cutifani said that it was appropriate to share the improvements with shareholders.
“We have a disciplined and value-focused approach to capital allocation that is designed to fund the sustainability of our existing business and our base cash dividend for shareholders,” he said.
“With a strong balance sheet in place, we then consider the appropriate balance of options for any discretionary capital, in terms of growth investments and additional returns.
“The share buyback program demonstrates our applied discipline and the Board’s confidence in the business.”
Updates to the board
Hixonia Nyasulu and Nonkululeko Nyembezi will join the Anglo American board as non-executive directors from November 1, 2019, and January 1, 2020 respectively as Nolitha Fakude moves into the executive role of Anglo American chairman of South Africa’s management board.
Anglo American chair Stuart Chambers said Ms Nyasulu had exceptional and highly relevant global board experience drawn from the natural resources, financial services and consumer industries.
“Her entrepreneurial spirit and passion for education and economic development will add richness to our board discussions,” he said.
“Equally, Ms Nyembezi’s engineering background and extensive experience spanning mining, steel, financial services and technology in South African and global organisations offers us great breadth of insights, both technical and strategic.
“We will continue to ensure that the non-executive directors on the board represent the full breadth of Anglo American’s business.”