| 14 May 2024 |
| Anglo American accelerates delivery of strategy to unlock significant value Radically simplified portfolio of world-class assets in copper, premium iron oreand crop nutrients |
Anglo American plc (“Anglo American”) is today setting out a clear, compelling and decisive plan to unlock significant value from its portfolio and accelerate the delivery of consistently stronger shareholder returns.
Following completion of the asset review initiated during 2023, Anglo American plans to implement a number of major structural changes to accelerate delivery against its strategic priorities of operational excellence, portfolio simplification, and growth:
Undiluted Anglo American shareholder participation in a simpler portfolio of world-class assets with full value transparency
· Copper
o 3 of the top 10 producing copper mines in South America, with outstanding resource endowments
o Set for multiple decades of competitive production and growth, with a defined pathway to >1mtpa of copper production
· Premium iron ore
o Focused producer of 100% premium product, ideally suited to support steel decarbonisation
o Attractive resource endowments in Brazil and South Africa
· Crop nutrients
o Slow down development to support balance sheet deleveraging, while critical technical studies are completed in 2025, to then support syndication. Capex reduced to $200 million in 2025 and no capex in 2026
o Preserving long term value from high quality asset with multi-generational resource scale
Compelling value proposition exclusively for Anglo American’s shareholders
· Portfolio and structure transformation – 100% future-enabling portfolio, including 54% copper production, in products that support the energy transition, improving global living standards and food security
· Outstanding organic growth – Proven project delivery and sustainability leadership
· High quality financial profile – EBITDA margin increases to 46% from 31% on a 2023 pro forma basis1
· Efficiency and accountability – $1.7 billion lower cost of new portfolio configuration. This includes $0.8 billion of additional pre-tax recurring annual run rate cost benefits from the end of 20252
· Disciplined capital allocation – less than 1.5x net debt:EBITDA leverage at bottom of the cycle, with 40% dividend payout maintained
Clear pathway for portfolio value delivery – in the right way and for value
· Steelmaking Coal – To be divested and currently responding to strong buyer interest
· Nickel – Exploring options for care and maintenance and divestment
· Anglo American Platinum – To be demerged in a responsible and orderly way to optimise value for both Anglo American’s and Anglo American Platinum’s shareholders
· De Beers – To be divested or demerged, to improve strategic flexibility for both De Beers and Anglo American
Duncan Wanblad, Chief Executive of Anglo American, said:
“We set out our clear strategic priorities earlier this year – operational excellence, portfolio simplification, and growth. Our decision to focus Anglo American’s portfolio in our world-class resource asset base in copper and premium iron ore – while retaining our crop nutrients optionality at Woodsmith – marks a major new phase in executing our strategy.
“We expect that a radically simpler business will deliver sustainable incremental value creation through a step change in operational performance and cost reduction.
“Anglo American’s shareholders will see the full undiluted upside from these extensive changes, with the value of our copper and iron ore assets brought to the fore. This next step in the transformation of Anglo American’s portfolio is set to accelerate the recognition of value that has been inherent in our business for many years and provide Anglo American’s shareholders with undiluted and differentiated participation in the major structural demand trends, while minimising any frictional costs associated with this major portfolio transformation.
“These actions represent the most radical changes to Anglo American in decades. I believe these are the right decisions to position Anglo American to capitalise on the outstanding resource endowment opportunities within our portfolio today. Our proven and differentiated capabilities within Anglo American, our global relationship networks and our longstanding reputation as a responsible mining company will help us unlock numerous of these and other opportunities in the jurisdictions where our experience and track record are most valuable and most valued, namely in South America and Southern Africa.
“Of course, we are conscious of the impacts of making such far-reaching changes, particularly on our employees. We see considerable opportunities for our employees, both in delivering the full potential of Anglo American and in the businesses that we will be divesting or demerging, all of which are high quality businesses in their own right. By implementing these portfolio changes ourselves, we will be able to do so in a manner that is respectful of our employees, host communities and countries, including ensuring that in South Africa in particular Anglo American continues to play its role as a responsible business leader to support the country’s national priorities.
“We are taking clear and decisive action to deliver value – safely, responsibly and reliably – in the long term interests of our shareholders and other stakeholders, and to deliver the products that are so critical to enabling the energy transition and supporting improved global living standards and food security.”
Three strategic priorities
Operational excellence
· Simplification of structure and portfolio to facilitate step change in performance
Anglo American is focused on operational and cost performance to deliver superior margins. The organisational re-design simplifies work execution and provides clear accountabilities for delivery. Anglo American is on track to achieve the previously announced run rate of US$1 billion annual savings in operating expenditure in 2024. Additionally, a further $0.8 billion of cost out from the end of 20252 is targeted. The capital expenditure reduction of US$1.6 billion over the next three years set out in December 2023 is also on track. Technology is being deployed into each operation in a targeted fashion to deliver improvements in safety, costs and productivity.
These initiatives are creating a more focused and robust platform to deliver consistent operational performance and give confidence in the effectiveness of further change. The portfolio simplification and organisation streamlining will also support greater focus on operational excellence and value creation.
Portfolio simplification
· Transformation of the portfolio to focus on world class assets in copper, premium iron ore and crop nutrients
· Changes implemented in the most effective manner, with timing to optimise shareholder and stakeholder value
A comprehensive asset review been completed. Each asset was assessed for competitiveness and performance optimisation potential, and for its role in the portfolio. The review examined how the portfolio as a whole can deliver the most attractive through the cycle returns for Anglo American’s shareholders considering asset competitive positioning, commodity outlook and the cash flow required to realise both growth potential and sustainable shareholder returns. The impact of portfolio composition on the recognition of the value of the underlying assets by the market has also been considered.
The principle behind the portfolio changes is to deliver the best value outcome for assets and businesses over time, leading to decisions relating to the following businesses, to be implemented as separate transactions and for value:
Steelmaking coal -. Anglo American intends to divest its high quality Steelmaking Coal business, with proceeds used to reset Anglo American’s balance sheet.
Anglo American Platinum – Anglo American Platinum’s assets have exceptional geological potential and Anglo American is currently setting up Anglo American Platinum to be resilient and deliver sustainable returns through the cycle as one of the world’s leading PGMs producers, despite the current cyclical downturn. Anglo American and Anglo American Platinum are working together to transform Anglo American Platinum to generate multi-decade cash flows, high returns and delivering its full potential. The ongoing reconfiguration of Anglo American Platinum and associated employee consultation process, announced in February 2024, continue and are not affected by this announcement.
It is, however, increasingly clear that if Anglo American were to retain Anglo American Platinum in its portfolio, it limits the ability to have the full value of both businesses fully reflected, limiting the ability of both Anglo American and Anglo American Platinum to achieve their full potential. Anglo American’s portfolio and structure are simpler without Anglo American Platinum, Anglo American’s portfolio will have strong geographic balance and less complexity in future capital allocation. As a standalone business, Anglo American Platinum will be best positioned to set its own priorities to deliver its full potential, with Anglo American’s shareholders able to participate in full through the demerger.
De Beers – Having made significant progress towards finalising the sales agreement with the Government of the Republic of Botswana, Anglo American is exploring the full range of options to separate the business in order to set it up for success in unlocking full value from its new Origins strategy, its world-class assets and its iconic brand. This will provide both Anglo American and De Beers with a new level of strategic flexibility to maximise value for both company’s shareholders.
Growth
· Outstanding growth potential across the portfolio with well-sequenced, value accretive opportunities in copper, premium iron ore and crop nutrients
· Leveraging differentiated and proven technical and sustainability capabilities, and multi-decade relationship networks in South America and Southern Africa
· A proven track record of major copper greenfield project delivery
· On plan and on budget with Woodsmith development
Each of the three portfolio verticals has the benefit of a number of value accretive growth and replacement options already owned by Anglo American and that can be developed at the right time.
Integral to Anglo American’s growth trajectory is the Woodsmith crop nutrients project. Anglo American will continue to work towards the completion of the feasibility study in the first half of 2025, as an essential building block for syndication to a strategic partner. In the meantime, we will slow the investment – which we now expect to be reduced to $0.2 billion in 2025 and no capex in 2026, to support balance sheet deleveraging.
Three major benefits for Anglo American’s shareholders
1. Undiluted Anglo American shareholder participation in a simpler portfolio of world-class assets with value transparency
The streamlined portfolio is underpinned by strong industrial logic, with each asset playing a clear role, and is uniquely positioned to enable and benefit from global decarbonisation, the ongoing pull for improved living standards, and food security.
· Copper
2023 EBITDA US$3.2 billion
2022 EBITDA US$2.2 billion
o Copper is critical for ongoing global economic development and the decarbonisation of the global economy through electrification. Copper demand is therefore expected to grow strongly whilst there are key constraints on the supply side including increasing timelines and requirements for licensing and permitting. Anglo American has an established track record of successfully developing such new supply, responsibly and profitably.
o Anglo American’s market position: Anglo American has an outstanding copper endowment through its interests in three world class copper assets – Quellaveco, Los Bronces and Collahuasi – set for multiple decades of competitive production and growth. In 2024 Anglo American has set guidance of 730-790kt of production with well-sequenced and self-funded brownfield and greenfield prospects (including at Sakatti) for value-accretive growth to more than 1 million tonnes of annual copper production in the next decade and for decades to come. For example, at Quellaveco, the 35-year current life of mine is based on Reserves of ~8 million tonnes of contained copper, but there are an additional ~8 million tonnes in Resources and further Exploration Targets with upside estimated at up to ~59 million tonnes of copper.
Anglo American’s differentiated technical, project delivery and sustainability capabilities built over many decades, coupled with its global relationship networks and longstanding reputation as a responsible mining company, are critical to unlocking the value of these endowments and supplying the copper needed for the energy transition and improved living standards.
This is expected to be achieved through faster permitting, mutually reinforcing community and stakeholder relationships, and seamless execution, as demonstrated most recently at Quellaveco – a $5.5 billion greenfield investment delivered on time and on budget – while many comparable projects across the industry remain undeveloped due to social and environmental challenges, face significant delays and cost overruns, or experience ongoing operational disruptions.
· Premium iron ore
2023 EBITDA US$4.0 billion
2022 EBITDA US$3.5 billion
o Premium iron ore, in particular the types suitable for the transition towards green steel and for direct reduction iron (“DRI”), is essential for steel industry decarbonisation and is expected to experience growth an order of magnitude more than that of lower quality iron ore, while benefitting from meaningful price premium potential.
o Anglo American’s market position: Anglo American’s portfolio is exceptionally well-positioned to benefit from this trend through its integrated Minas-Rio operation in Brazil that produces a 67% Fe product ideal for DRI pellet feed. Kumba in South Africa also produces premium quality lump iron ore at 63% Fe that generates product premium with excellent thermal shock resistance, lower fines formation in the blast furnace and increased sinter plant productivity, with potential for further upgrading of product quality. Both Minas-Rio and Kumba assets have contributed significantly to group cash flow in recent years and are well set to underpin shareholder returns and growth ambitions across the portfolio. The recently announced addition to Minas-Rio of the Serpentina endowment, with a strike length more than double that of Minas-Rio’s, provides a high value option to double Minas-Rio production by the mid-2030s, with meaningful synergies.
· Woodsmith
Woodsmith is a Tier 1 resource entirely aligned with the demand trends of decarbonisation and food security. Woodsmith has outstanding long term potential given the sheer scale and thickness of the polyhalite orebody, lending itself to fully mechanised, low cost bulk mining, with minimal processing required. This is as close as you can get to a mine-to-field multi-nutrient fertiliser product, translating into its organic status and lower carbon footprint, ideally suited to the long term demand trend caused by threats to food security and the increasing challenges around access to arable land and the need to increase crop yield and support improved soil health.
Anglo American has high confidence, backed by its proven track record in project delivery, to develop the Woodsmith project, which is currently on plan and on budget. In the near term, Anglo American will slow the development of the Woodsmith project to support Anglo American’s balance sheet deleveraging, with capex for critical studies and other activities expected to total $200 million in 2025 and no capex in 2026. Anglo American continues to recognise the asset’s unique resource and long term value potential and will complete critical technical studies in 2025 to then enable syndication for value with one or more strategic partners.
· Proven capabilities for value delivery:
Supporting Anglo American’s more focused portfolio will be an aligned organisation structure that is fit for purpose to leverage Anglo American’s differentiated capabilities and global relationship networks to deliver the full potential of the portfolio and each asset within it. The organisation will be set up to unlock numerous future resource opportunities in the jurisdictions where Anglo American’s experience is most valuable and valued, in two of the most prospective mining regions – South America and Southern Africa.
Such proven capabilities include the projects, technical and sustainability expertise that was integral to delivering the Quellaveco project on time and budget despite numerous headwinds over many years, including the global pandemic. This also benefited from Anglo American’s deep-seated regional capabilities that provide confidence in future project execution – these capabilities will be of increasing importance given the social and environmental challenges associated with bringing to the market new sources of critical raw materials, such as copper, particularly given the likely locations of new high quality assets. Anglo American’s global Marketing business will also be focused accordingly and will continue to ensure the optimisation of Anglo American’s products across the value chain.
2. Compelling value proposition exclusively for Anglo American shareholders
This simplification of the portfolio stands to accelerate – and step up – value delivery exclusively for Anglo American shareholders:
· Portfolio and structure transformation – 100% future-enabling product portfolio including 54% of pro forma production from copper (2023 CuEq production basis), focused solely on products that support the energy transition, improving global living standards, and food security.
· Outstanding organic growth – Defined pathway to >1mtpa copper by early 2030s through growth options within the portfolio, with proven sustainability and project delivery capabilities.
· High quality financial profile – EBITDA margin increases from 31% to 46% on a 2023 pro forma basis1.
· Efficiency and accountability – $1.7 billion lower cost with new portfolio configuration. This includes an additional $0.8 billion of cost out from the end of 20252. The additional cost out will be achieved from: additional reductions in operating expenditure; reduced corporate initiatives and other funding commitments; implementing a fit for purpose organisation at the headquarters and country offices to leverage Anglo American’s differentiated capabilities and global relationship networks to deliver the portfolio’s full potential; and delivering the targeted operating model for the simplified Anglo American portfolio.
· Disciplined capital allocation – less than 1.5x net debt:EBITDA leverage at the bottom of the cycle, with 40% dividend payout maintained.
3. Clear pathway for portfolio value delivery – in the right way and for value
The pathway to portfolio simplification is designed to have shareholder value at its centre, with actions intended to ensure that Anglo American’s shareholders can maximise their participation in value creation, while minimising frictional costs and mitigating execution risks. Anglo American intends to execute with urgency, but not at the expense of shareholder value or without due regard to Anglo American’s stakeholders.
The key steps will include:
· Steelmaking Coal: Divest Anglo American’s high quality steelmaking coal interests. Proceeds will be used to reset Anglo American’s balance sheet.
· Nickel: Urgent action is being taken to limit the impact of short term market pressure on cash flow and, in parallel, exploring options for care and maintenance and divestment.
· Anglo American Platinum: Demerger of Anglo American Platinum in a way that both optimises value for Anglo American shareholders and Anglo American Platinum shareholders, and ensures that such separation is implemented in a responsible and orderly way, with due regard for ensuring Anglo American Platinum’s ongoing positive stakeholder value contribution. The demerger will enable Anglo American’s shareholders to gain direct participation in strong PGMs fundamentals and Anglo American Platinum’s leading competitive and market positions.
· De Beers: Having made significant progress towards finalising the sales agreement with the Government of the Republic of Botswana, Anglo American is exploring the full range of options to separate the De Beers business. This will give both Anglo American and De Beers a new level of strategic flexibility to maximise value for both Anglo American and the Government of the Republic of Botswana, as De Beers’ shareholders.
Workforce considerations
· Anglo American acknowledges that many of the intended portfolio and other changes set out above may create uncertainty for Anglo American’s workforce, recognising the scale of the portfolio transformation. Anglo American intends to implement the changes in a manner that recognises the impact of such changes on its employees, with appropriate planning and engagement with relevant stakeholders.
· However, Anglo American also expects the changes to present numerous opportunities for Anglo American’s workforce, particularly in relation to the acceleration of Anglo American’s strategy and the differentiated skills and capabilities required to deliver that strategy, as well as in the standalone businesses that Anglo American plans to separate and/or divest. Anglo American’s workforce will be key in the delivery of the changes, and in the sustained success of all the businesses.
· Anglo American expects to take steps to retain the skills and talent required to deliver Anglo American’s full potential, as part of its review of its workforce arrangements to ensure alignment with these portfolio changes.
· Anglo American will need to consider its global workforce arrangements to realise the opportunities for its employees and to ensure delivery of the accelerated strategy. All options will be considered and if any restructuring is proposed in due course, Anglo American will comply with all consultation requirements contained in collective agreements and relevant legislation.
· The ongoing workforce and wider reconfigurations of Anglo American Platinum and Kumba, and their associated employee consultation processes, as set out in February 2024, continue and are not affected by this announcement.
Webcast of presentation:
A webcast of the presentation, starting at 11.00am UK time on 14 May 2024, can be accessed through the Anglo American website at www.angloamerican.com