Anglo sets pace for rivals

Tax take from miner helped bolster govt’s relief effort

Record profits and giant tax payments from the Anglo American group this week are a taste of things to come as the mining sector’s reporting season opens, with the commodities boom expected to last for the rest of the year at least.

Shareholders have been richly rewarded as the Anglo companies paid out a high proportion of their profits in dividends. The fiscus has also reaped rich pickings, which will have helped to ensure government revenue for the current fiscal year comes in well over February’s budget estimates.

The Anglo group paid R30bn of tax in SA alone in the six months to end-June — which on its own was almost enough to fund the R31bn of new spending in the relief package that finance minister Tito Mboweni detailed this week.

Anglo American Platinum alone, for example, paid R16.6bn — R14bn more than it paid in the first half of last year — and the sum had to be transferred to the South African Revenue Service over two days because it was so large, said Angloplats FD Craig Miller.

Economists at the Institute for Economic Justice have called for a “resource rent tax”, which they estimate could raise up to R38bn to part-fund a universal basic income grant for SA. But Anglo American CEO Mark Cutifani pointed to the very large tax contribution the group was making in good times, saying the system was working as it should.

Across the group’s operations globally, the effective tax rate paid was 30% — higher than SA’s corporate income tax rate of 28% — and double the 15% the world’s rich countries want to set as the minimum rate to prevent tech companies, especially, from moving profits around to minimise their tax bills.

PwC’s energy, utilities and resources leader Andries Rossouw said the taxman had received “really good money” from the mining sector this time around for two reasons.

The sector can get full deductions upfront for capital spending but in past, bad years it wasn’t earning the taxable profits from which to deduct these, so it had built up a “tax shield” that kept its effective tax rate low. However, the bulk of this shield had been wiped out over the past few years so it’s now back to paying at SA’s full 28% corporate tax rate.

The other big reason tax receipts from the industry have been running so high is that SA’s royalty taxes are progressive, going from a minimum 0.5% of revenue when there’s no profit, to a maximum of 7%-9%, so this time around not only are mines paying royalties on much higher profits but they are also paying at much higher rates.

Anglo beat market expectations, benefiting from record prices of iron ore, platinum group metals (PGMs) and copper. It was also boosted by recoveries in sales at De Beers and refined production at Angloplats, which was beset by troubles at its converters last year, as well as a ramp-up in copper production at its new Quellaveco operation in Peru.

The group posted attributable profit of $5.2bn (about R76bn), more than 11 times the $471m for the same period last year. It paid out $4bn of this by way of an interim dividend as well as a $1bn special dividend and a $1bn share buyback. Angloplats and Kumba Iron Ore paid out 100% of their attributable profit in interim dividends.

Analysts say a theme of the current reporting season is the extent to which miners are likely to pay out their cash to shareholders, rather than holding onto it to fund investment in growth or in mergers & acquisitions, as many were doing previously.

Cutifani said Anglo’s two listed subsidiaries and the group are debt-free “and

one might argue they have lazy balance sheets so it makes sense to return money to shareholders”.

The group’s various initiatives are expected to grow its business at 20% over the next three years, and to lift its output to levels that are 35% higher by 2030. On acquisitions, he said if the opportunity for real value creation arose, the group would look at it but “we are not going to pay top dollar at the top of the cycle”.

He said iron ore prices were very good but might weaken a little. Copper was strong and should hold, while PGMs had already seen rhodium track back, but platinum still had room to improve.

The prognosis for the next six months was still “pretty good”, Cutifani said, and over the next 3-5 years the world would still be short of the metals needed for the energy transition, such as copper and PGMs.

Unathi Loos, portfolio manager at Ninety One’s 4FactorSA team, said the outlook for PGMs was “a bit of a quandary”, with rhodium already 40% off its May highs and investors becoming more concerned about demand beyond 2030, if electric vehicles replaced the petrol and diesel vehicles that use platinum and palladium to clean emissions.

Iron ore had also come off its May high of $203 a ton (which was up from $158 in January), but was still expected to average about $180 in the second half of this year. The price of thermal coal was strong, but there were concerns about the constraints on exports because of Transnet.

Loos said investors wanted to see strong payouts to shareholders from other miners as they report their results in the next few weeks, and were hoping they would follow Anglo’s example.