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Anglo American PLC (AAL)

  Print      Mail a friend       Annual reports

Tuesday 16 February, 2016

Anglo American PLC

Anglo American plc Preliminary Results 2015

RNS Number : 1417P
Anglo American PLC
16 February 2016
 

 

 

 

 

 

 

Click on, or paste the following link into your web browser, to view the associated PDF document.

 

 http://www.rns-pdf.londonstockexchange.com/rns/1417P_-2016-2-15.pdf

 

 

 

 

 

 

 

 

YEAR END FINANCIAL REPORT

 

for the year ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This page has been intentionally left blank.

 

 

 

16 February 2016

 

Anglo American Preliminary Results 2015

 

Balance sheet resilience through capital and operational discipline and disposals, offsetting further price weakness

á    Group underlying EBIT(1) of $2.2 billion, a 55% decrease, due to sharply weaker commodity prices    ($4.2 billion(2) underlying EBIT impact), partially offset by weaker producer country currencies ($1.8 billion underlying EBIT benefit) and incremental cost reductions

á     Cost reductions mitigating headwinds, with disposals being progressed:

-     $1.3 billion of cost and productivity improvements delivered in 2015(3)

-     Production volumes increased by 5% (Cu eq.)(4)

-     Unit costs decreased by 16% in US dollar terms (Cu eq.)(4)

-     $2.1 billion(5) of completed or announced disposals by end of 2015

á    Capital discipline, improved operational performance and disposal proceeds delivered $600 million net debt reduction since the half year, to $12.9 billion as at 31 December 2015 (31 December 2014:
$12.9 billion), despite a 14% further decrease in commodity price basket, with $14.8 billion of liquidity maintained

á   Commodity price-driven impairments of $3.8 billion since the half year (pre-tax and includes related charges), contributing to a statutory loss before tax for the year of $5.5 billion

Financial highlights

US$ million, unless otherwise stated

Year ended

31 December 2015

 

Year ended

31 December 2014


Change

Underlying EBIT(1)

2,223

 

4,933

(55)%

Underlying earnings(6)

827

 

2,217

(63)%

Group revenue(7)

23,003

 

30,988

(26)%

Underlying EBITDA(8)

4,854

 

7,832

(38)%

Loss before tax(9)

(5,454)

 

(259)

-

Loss for the financial period attributable to equity shareholders of the Company(9)

(5,624)

 

(2,513)

-

Underlying earnings per share (US$)(6)

0.64

 

1.73

 

Dividend per share (US$)

$0.32

 

$0.85

-

Attributable ROCE%(10)

5%

 

9%

-

Notes to the highlights and table are shown at the bottom of this section.

Mark Cutifani, Chief Executive of Anglo American, said: "The global economic environment and its impact on prices have presented the industry with significant challenges during 2015. Against the strong headwinds of a 24% decrease in the basket price of our products for the year as a whole, our ongoing intense focus on operational costs and productivity delivered a $1.3 billion EBIT benefit in the year, providing some mitigation. Overall, our copper equivalent unit costs reduced by a further 16% in US dollar terms, representing a 27% total reduction since 2012.

 

"Our portfolio transformation is well on track, from c.65 assets in 2013 to 45 today. We completed or announced $2.1 billion(5) of disposals in 2015, including from the sale of our 50% interest in Lafarge Tarmac and the Norte copper assets in Chile, while also agreeing the sale of the Rustenburg platinum operations and two non-core coal assets in Australia, which we expect to complete during 2016.

 

"Together with operational and cost improvements, significant capex reductions and making the tough decisions with some of our more marginal assets, we have been able to maintain our net debt and liquidity levels at $12.9 billion and $14.8 billion respectively, despite our $4.0 billion(11) of capital commitments for 2015 and the $2.4 billion net EBIT erosion from lower prices and weaker producer country exchange rates.

 

"We have made significant progress, albeit in an environment that has been deteriorating at a faster pace. Today we are announcing(12) detailed and wide-ranging measures to sustainably improve cash flows and materially reduce net debt, while focusing on our most competitive assets to create the new Anglo American, positioned to deliver robust profitability and cash flows through the cycle."

 

 

Notes to the highlights and table on page 1

 

(1)    Underlying EBIT is operating profit presented before special items and remeasurements, and includes the Group's attributable share of associates' and joint ventures' underlying EBIT. See notes 4 and 6 to the Condensed financial statements for underlying EBIT. For definition of special items and remeasurements, see note 7 to the Condensed financial statements.

(2)    Excludes De Beers.

(3)  Excludes $0.8 billion volume downside at De Beers in response to market conditions.

(4)    Copper equivalent production has been adjusted for the disposal of Anglo American Norte in 2015. Copper equivalent unit cost shown on a reported basis. Adjusted for the Platinum strike, copper equivalent unit cost was (13)%.

(5)    Gross proceeds from transactions completed or announced in 2015, principally Tarmac UK ($1.6 billion), Anglo American Norte ($0.3 billion) and the fair value of the Rustenburg consideration ($0.2 billion).

(6)    See note 6 and 10 to the Condensed financial statements for basis of calculation of underlying earnings.

(7)    Includes the Group's attributable share of associates' and joint ventures' revenue of $2,548 million (2014: $3,915 million). See note 4 to the Condensed financial statements.

(8)    Underlying EBITDA is underlying EBIT before depreciation and amortisation in subsidiaries and joint operations, and includes the Group's attributable share of associates' and joint ventures' underlying EBITDA.

(9)    Stated after special items and remeasurements. See note 7 to the Condensed financial statements.

(10)  Attributable ROCE is defined as the return on the capital employed attributable to the equity shareholders of Anglo American plc. It is calculated based on achieved prices and foreign exchange.

(11) Excluding capitalised losses of $147 million.

(12) In the separate Strategy Press Release, published on 16 February 2016.

 

 

Financial review of Group results for the year ended 31 December 2015

 

Summary

 

Anglo American reported underlying earnings of $0.8 billion (2014: $2.2 billion) with underlying EBIT decreasing by 55% to $2.2 billion.

 

Falling prices were seen across most products ($4.2 billion impact on underlying EBIT), with the average iron ore CFR China price down 42% and copper price down 20%. This was only partly offset by weaker commodity currencies ($1.8 billion impact), with a weakening of the South African rand and the Australian dollar against the US dollar. After adjusting for inflation, cash costs decreased as a result of cost-reduction initiatives across the Group and falling input costs such as diesel, rubber and steel.

 

Weaker rough diamond demand negatively affected underlying EBIT, although this was partially offset by increased sales volumes at Coal Australia, Coal South Africa, Kumba Iron Ore (Kumba) and Platinum.

 

Net debt remained flat at $12.9 billion. Significantly weaker operational cash flows were, for the most part, offset by a $2.0 billion reduction in capital expenditure, as expansionary projects approach completion and stay-in-business capital expenditure has been reduced. In addition, Anglo American received $1.7 billion in net disposal proceeds, primarily from Lafarge-Tarmac and Anglo American Norte.

 

Full year post-tax impairments of $5.7 billion have been recorded in operating special items, reflecting the impact of deteriorating market conditions, including weaker prices, on asset valuations.

 

Operational performance (production/costs)

 

Operational performance was in line with expectations across the majority of the business. Platinum production rose by 25%, largely due to the recovery from the 2014 strike, as well as a strong mining performance at Mogalakwena and Amandelbult. Rough diamond production decreased by 12% in response to prevailing trading conditions. Copper production decreased by 5%, largely due to the disposal of Anglo American Norte, effective from 1 September 2015. On a pro forma basis (excluding the impact of Anglo American Norte), production was 1% lower, driven by the impact of drought conditions on throughput at Los Bronces and plant instability at Collahuasi during the third quarter, partly offset by higher grades.

 

Nickel production decreased by 19% to 30,300 tonnes, reflecting the impact of the furnace rebuilds at Barro Alto. At Niobium, the 34% increase in output to 6,300 tonnes reflected the ongoing ramp-up of the BVFR project. Production at Kumba decreased 7% owing to mining constraints at Sishen. The ramp-up of Minas-Rio continued, with increases in quarter-on-quarter production throughout the year. Output at Coal Australia and Canada increased by 1%, despite Peace River Coal (which produced 1.5 Mt in 2014) being on care and maintenance for the year. At Coal South Africa, export production decreased 4%, owing to the planned closure of a section at Goedehoop and lower production at Mafube as it transitions to a new mining area.

 

The Group achieved a favourable cost performance in 2015, even allowing for the benefits of weaker local currencies. At Platinum, year-on-year cash operating costs per unit of platinum production (metal in concentrate) decreased by 28% to $1,508 per ounce, owing primarily to the impact of the industrial action on costs in 2014, and the benefit of the weaker rand. As a result of cost savings and the benefit of weaker local currencies at De Beers, consolidated unit costs declined from $111/carat to $104/carat, despite lower volumes. In Copper, there was a $208 million reduction in on-mine cash costs of the retained operations, driven by cost saving initiatives, including a 16% reduction in headcount at Los Bronces. Nickel C1 unit costs decreased by 12%, driven by the weaker Brazilian real, partly offset by inflation and lower production volumes owing to the furnace rebuilds. During the year, Kumba reduced controllable costs by $8/tonne to achieve an average cash break-even price of $49/tonne (CFR China). Coal Australia FOB costs decreased by 7% in local currency terms following increased productivity at underground mines and cost reductions, resulting in the lowest unit costs since 2007. Coal South Africa delivered flat unit costs, despite planned lower production and 8% inflation.

 

 

 

Income Statement

 

Underlying EBIT

Group underlying EBIT was $2.2 billion, a 55% decrease (2014: $4.9 billion).

 

 

$ million

Year

ended

31 December

2015

Year

ended

31 December 2014

Platinum

263

32

De Beers

571

1,363

Copper

228

1,193

Nickel

(22)

21

Niobium and Phosphates

119

124

Iron Ore and Manganese

671

1,957

Coal

457

458

Corporate and other

(64)

(215)

Total

2,223

4,933

 

 

Underlying Earnings

Group underlying earnings were $0.8 billion, a 63% decrease (2014: $2.2 billion).

 

 

Year ended 31 December 2015

 

$ million

Underlying EBIT

Net finance costs and income tax expense

Non-controlling interests

Underlying earnings

 

 

 

 

 

Platinum

263

(56)

(39)

168

De Beers

571

(274)

(39)

258

Copper

228

(120)

(41)

67

Nickel

(22)

3

-

(19)

Niobium and Phosphates

119

(71)

-

48

Iron Ore and Manganese

671

(323)

(250)

98

Coal

457

(158)

(7)

292

Corporate and other

(64)

(34)

13

(85)

Total

2,223

(1,033)

(363)

827

           

 

 

Net finance costs

Net finance costs, before special items and remeasurements, excluding associates and joint ventures, were $458 million (2014: $256 million). The increase was driven by lower interest income due to a reduction in the average cash balance held by the Group (2015: $6,963 million, 2014: $7,878 million) and net foreign exchange losses in the current period, primarily driven by the weakening of the Brazilian real and South African rand.

 

Tax

The effective rate of tax, before special items and remeasurements and including an attributable share of associates' and joint ventures' tax, increased to 31.0% at year end (31 December 2014: 29.8%). This increased rate was due to the net impact of certain prior year adjustments, the remeasurement of withholding tax provisions across the Group, and the relative levels of profits arising in our operating jurisdictions. In future periods, it is expected that the effective tax rate will remain above the United Kingdom statutory tax rate.

 

Reconciliation to (loss)/profit for the period from underlying earnings

 

 

$ million

Year

ended

31 December 2015

Year

ended

31 December 2014

Underlying earnings

827

2,217

Operating special items

(5,972)

(4,374)

Operating remeasurements

(178)

(1)

Non-operating special items

(1,278)

(385)

Financing special items and remeasurements

615

36

Special items and remeasurements tax

47

2

Non-controlling interests on special items and remeasurements

584

38

Share of associates' and joint ventures' special items and remeasurements

(269)

(46)

Loss for the financial period attributable to equity shareholders of the Company

(5,624)

(2,513)

 

 

 

Underlying earnings per share (US$)

0.64

1.73

 

Special items and remeasurements

Special items and remeasurements primarily relate to impairments in respect of the Minas-Rio iron ore project of $2.5 billion; Capcoal, Peace River Coal and other assets within the Coal segment of $1.2 billion; assets and investments within the Platinum business of $0.7 billion; the Snap Lake operation within the De Beers business of $0.6 billion; and the write-down to fair value of the Rustenburg Platinum mine of $0.7 billion. Full details of the special items and remeasurements charges are to be found in note 7 to the Condensed financial statements.

 

Group ROCE

Attributable ROCE declined to 5% in 2015 (2014: 9%) primarily as a consequence of weaker commodity prices, partly offset by improved operational performance and recovery from the platinum strike in 2014, the benefit of weaker local currencies, a lower proportion of post-tax earnings attributable to non-controlling interests and lower average attributable capital employed. Average attributable capital employed was lower at $32.6 billion (2014: $38.7 billion), driven by impairments, offset by ongoing capital expenditure.

 

Attributable ROCE is the primary return measure used in the Group. This is underlying attributable EBIT divided by average attributable capital employed. It is defined as the return on the capital employed attributable to equity shareholders of Anglo American, and therefore excludes the portion of underlying EBIT and capital employed attributable to non-controlling interests in operations where Anglo American has control, but does not hold 100% of the equity. Joint operations, associates and joint ventures are included in their proportionate interest, in line with appropriate accounting treatment. ROCE is calculated based on achieved prices and foreign exchange.

 

The previous ROCE measure, used to track the Driving Value programme, incorporated a number of adjustments, principally to reverse the impact of certain impairments and acquisition fair value adjustments. The new attributable ROCE measure has been developed to allow a clearer link to the published financial statements. Comparatives have been restated to align with the current period presentation, and capital employed by segment is disclosed in note 4 to the Condensed financial statements.

 

Balance sheet

Net assets of the Group decreased to $21.3 billion (2014: $32.2 billion), driven primarily by impairments of $5.7 billion, losses on disposals of subsidiaries and joint ventures, foreign exchange losses of $4.1 billion, and depreciation of $2.6 billion. Capital expenditure, including capitalised operating cash outflows, for the year was $4.2 billion, whilst net debt remained flat at $12.9 billion, as explained below.

 

Net debt

 

$ million

2015

2014

Opening net debt

(12,871)

(10,652)

EBITDA(1)

4,419

7,104

Working capital movements

25

             9

Other cash flows from operations

(204)

(164)

Cash flows from operations

4,240

       6,949

Capital expenditure including related derivatives(2)

(4,177)

(6,018)

Cash tax paid

(596)

(1,298)

Dividends from associates, joint ventures and financial asset investments

333

         460

Net interest

(540)

(473)

Dividends paid to non-controlling interests

(242)

(823)

Attributable free cash flow

(982)

(1,203)

Dividends paid to Company shareholders

(1,078)

(1,099)

Disposals (net proceeds)

1,745

44

Other net debt movements

285

 39

Total movement in net debt

(30)

(2,219)

Closing net debt (3)

(12,901)

(12,871)

 

(1)    EBITDA is underlying EBITDA, as described in note 4 to the Condensed financial statements, less EBITDA of associates and joint ventures.

(2)  Please see note 11 to the Condensed financial statements for the definition of capital expenditure.

(3)    Net debt excludes the own credit risk fair value adjustment on derivatives of $555 million (31 December 2014: Nil).

 

Net debt

Net debt (including related hedges) of $12,901 million was $30 million higher than at 31 December 2014, representing gearing of 37.7% (31 December 2014: 28.6%). Net debt is made up of cash and cash equivalents of $6,889 million (31 December 2014: $6,747 million) and gross debt including related derivatives of $19,790 million (31 December 2014: $19,618 million). Net debt remained flat year-on-year, with significant cash outflows arising on capital expenditure, the payment of dividends to Company shareholders and to non-controlling interests, and interest payments, offset by cash generated from operations and disposal proceeds.

 

Anglo American received net proceeds from disposals of $1,745 million (31 December 2014: $44 million), primarily for the sale of its 50% interest in Lafarge Tarmac and for the sale of Anglo American Norte, taking into account disposed cash and transaction costs.

 

Cash flow from operations

Cash flow from operations decreased by $2,709 million to $4,240 million (31 December 2014: $6,949 million), driven by the 38% decrease in underlying EBITDA. Cash inflows on operating working capital were $25 million (31 December 2014: inflows of $9 million). These were due to a decrease in operating receivables, primarily at Kumba, owing to lower realised prices, offset by increases in inventories at De Beers, resulting from lower volumes sold.

 

Attributable free cash flow

Attributable free cash flow increased by $221 million to an outflow of $982 million despite cash flow from operations decreasing by $2,709 million. The improvement was primarily due to a reduction in capital expenditure of $1,841 million to $4,177 million (31 December 2014: $6,018 million) mainly owing to the Minas-Rio iron ore project in Brazil moving into its ramp-up phase. Cash tax paid and dividends paid to non-controlling interests decreased by $1,283 million in total, driven by lower earnings.

 

Net disposal proceeds of $1,745 million relate primarily to the completion of the sale of the Group's interests in Lafarge Tarmac and Anglo American Norte.

 

Liquidity and funding

At 31 December 2015, the Group had undrawn committed bank facilities of $7.9 billion and cash of $6.9 billion. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, indicate the Group's ability to operate within the level of its current facilities. The Group has certain financial covenants in place in relation to external debt which are not expected to be breached in the foreseeable future.

 

Dividends

No final dividend was declared for 2015 (final dividend 2014: 53 US cents per ordinary share). An interim dividend of 32 US cents was declared and paid. Total dividends paid to Company shareholders during 2015 were $1,078 million (31 December 2014: $1,099 million).

 

Further protecting its balance sheet and cash position, Anglo American announced in December 2015 its decision to suspend dividend payments. The commitment to a dividend during the ordinary course of business remains a core part of the Group's overall capital allocation approach and the Board has recommended that, upon resumption, Anglo American should adopt a payout ratio-based dividend policy in order to provide shareholders with exposure to improvements in commodity prices, while retaining cash flow flexibility during periods of weaker pricing.

 

Projects and capital expenditure

Following an increased focus on capital discipline and in response to current conditions, capital expenditure was reduced, before capitalised losses, to $4.0 billion (2014: $6.0 billion). The reduction was largely driven by a 41% decline in expansionary capital expenditure, mainly owing to the Minas-Rio iron ore project in Brazil moving into its ramp-up phase.

 

Expansionary capital expenditure remains focused on the delivery of our portfolio of existing major projects, including Gahcho Kué, Venetia Underground and Grosvenor. As these projects transition into production, expansionary capital expenditure will continue to decrease, which will enable the Group to further align its level of growth investment with prevailing commodity market conditions.

 

Stay-in-business capital expenditure declined by 30% to $1.4 billion (2014: $2.0 billion), as the roll-out of the Operating Model across our assets delivered an optimised stay-in-business capital expenditure plan.

 

Projects in ramp-up in 2015

In Nickel, the rebuild of the two furnaces at Barro Alto was concluded ahead of schedule and budget. Delivery of first metal from the second furnace rebuild occurred in September, more than one month ahead of expectations, and nameplate capacity production should be achieved through 2016.

 

Niobium's Boa Vista Fresh Rock project reached 69% of nameplate capacity in December 2015, and is expected to reach full nameplate capacity in the third quarter of 2016.

 

The Minas-Rio iron ore operation continued to ramp up in 2015, with increases in quarter-on-quarter production throughout the year. The operation is expected to reach commercial production capacity in 2016, although it will remain in ramp-up throughout the year.

  

Projects advanced in 2015

De Beers' Gahcho Kué project in Canada is progressing well, with key land use, water licence and surface leases all now received. In addition, all six Impact Benefit Agreements (with indigenous communities) have been completed. As at 31 December 2015, the project was 83% complete and remains on track for first production during the second half of 2016, with commercial production expected in the first quarter of 2017.

 

Construction of De Beers' Venetia Underground mine in South Africa continues to progress, with the decline advanced to more than 1,100 metres and the project 21% complete. The underground operation is expected to become the principal source of ore at Venetia from late 2022.

 

Projects initiated in 2015

No new major growth projects were initiated in 2015, in line with the Group's focus on improving cash flows.

 

Disposals completed in 2015

The evaluation and sales processes for a number of Anglo American's major assets are progressing. During 2015, we completed or announced $2.1 billion of disposal transactions, including from our 50% share of the Lafarge Tarmac JV ($1.6 billion) that was agreed in 2014, and the sale of the Norte copper assets in Chile ($0.3 billion), while also announcing the sale of the Rustenburg platinum mines to Sibanye Gold. Sales have recently been agreed for the Dartbrook and Callide coal mines in Australia (subject to a number of conditions) and the sale of Kimberley Mines has been completed.

 

The Board

On 22 July 2015, Tony O' Neill was appointed to the Board as an executive director. Mr O' Neill joined Anglo American as Group Director - Technical in September 2013, with responsibility for mining and technology, business performance, projects and SHE (safety, health and environment).

Phuthuma Nhleko resigned as an independent non-executive director on 27 November 2015, having expressed his wish to concentrate on his business interests in South Africa. The Board would like to thank him for his keen commercial and strategic capability, and sound judgement over the last four years.

 

Principal risks and uncertainties

Anglo American is exposed to a variety of risks and uncertainties which may have a financial, operational or reputational impact on the Group, and which may also have an impact on the achievement of social, economic and environmental objectives.

 

The principal risks and uncertainties facing the Group at the year-end are set out in detail in the Strategic Report section of the Annual Report 2015. The principal risks relate to the following:

 

á      Commodity prices

á      Political and regulatory

á      Organisational change

á      Portfolio restructuring

á      Minas-Rio

á      South Africa power

á      Safety.

 

The Group also face certain risks that we deem catastrophic risks; high severity, very low likelihood events that could result in multiple fatalities or injuries, an unplanned fundamental change to strategy or the way we operate, and have significant financial consequences. Catastrophic risks are included as principal risks and are:

á      Tailings dam failure

á      Slope wall failure

á      Mineshaft failure

á      Fire and/or explosion.

 

The Group is exposed to changes in the economic environment, as with any other business. Details of any key risks and uncertainties specific to the period are covered in the operations review section.

The Annual Report 2015 is available on the Group's website www.angloamerican.com.

 

Operations review for the year ended 31 December 2015

 

In the operations review on the following pages, underlying EBIT includes the attributable share of associates' and joint ventures' EBIT and is before special items and remeasurements unless otherwise stated. Capital expenditure is defined as cash expenditure on property, plant and equipment, including related derivatives, proceeds from disposal of property, plant and equipment and direct funding for capital expenditure from non-controlling interests.

 

PLATINUM

Key performance indicators

 

 

Production volume

Sales

volume

Price

Unit cost

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

ROCE

 

 

koz(1)

koz

$/Pt oz(2)

$/Pt oz

$m

$m

$m

$m

 

 

Platinum

2,337

2,471

1,905

1,508

4,900

718

263

366

4%

 

  Prior year

1,870

2,115

2,413

2,081

5,396

527

32

576

0%

 

Mogalakwena

392

422

2,585

1,369

1,092

496

368

151

-

 

  Prior year

370

382

3,277

1,742

1,271

504

371

196

-

 

Amandelbult

437

433

1,641

1,382

712

97

36

53

-

 

  Prior year

219

279

2,117

2,384

593

(37)

(96)

68

-

 

Other operations

1,508

1,616

-

-

3,096

177

(89)

156

-

 

  Prior year

1,281

1,454

-

-

3,532

118

(185)

306

-

 

Project and corporate

-

-

-

-

-

(52)

(52)

6

-

 

  Prior year

-

-

-

-

-

(58)

(58)

6

-

 

 

(1)    In keeping with industry benchmarks, production disclosure has been amended to reflect own mine production and purchases of metal in concentrate. Previous disclosure of own mine production and purchases of metal in concentrate was converted to equivalent refined production using standard smelting and refining recoveries.

(2)    Average US$ basket price.

Financial and operating overview

Underlying EBIT increased by $231 million to $263 million (2014: $32 million). This was due to an improved operational performance following the 2014 industrial action, higher sales volumes, the weakening of the South African rand against the dollar, and an annual inventory adjustment which improved underlying EBIT by $181 million.

 

Year-on-year cash operating costs per unit of platinum production (metal in concentrate) decreased by 28% to $1,508 per ounce, excluding projects, owing primarily to the impact of the industrial action on costs in 2014, and the benefit of the weaker rand. On a 2014 financial year strike-adjusted unit cost basis, rand cash operating costs per unit of platinum production increased by 6% as a result of mining inflation costs, specifically relating to electricity and employment. This compares, however, to a mining inflation rate of ~7% in South Africa. On a strike-adjusted US dollar basis, unit costs were 10% lower, reflecting the benefit of the weaker rand.

Markets

 

 

2015

2014

Average platinum market price ($/oz)

Average palladium market price ($/oz)

Average rhodium market price ($/oz)

Average gold market price ($/oz)

US$ realised basket price - Pt ($/Pt oz)

Rand realised basket price - Pt (ZAR/Pt oz)

1,051

691

932

1,160

1,905

24,203

1,385

803

1,173

1,266

2,413

26,219

 

The average US dollar basket price per platinum ounce sold decreased by 21% in 2015 to $1,905, despite platinum and palladium demand exceeding supply from mining and recycling for the fourth consecutive year. The prospect of monetary tightening in the US, growth concerns in China, uncertainty surrounding Greece's possible exit from the euro, and the unfolding vehicle emissions scandal all dampened sentiment towards platinum group metals (PGMs). In addition, further supply from above-ground inventories and a weakening rand led to price declines in the year. Mined metal in South Africa recovered to above 2013 levels, following strike-affected 2014, though production from both Russia and North America fell. Total secondary supply declined owing to lower jewellery recycling volumes in China and reduced scrap incentives in the automotive sector. Declines in jewellery and investment demand were offset by a relatively strong performance by the automotive and industrial sectors.        

Operating performance

Total platinum production (metal in concentrate) rose by 25% to 2,337,000 ounces (2014: 1,870,000 ounces). The increase was attributable to recovery from the five-month strike and subsequent ramp-up in the prior year, as well as a strong mining performance at Mogalakwena, Amandelbult and Unki mines.

 

Mogalakwena mine, which was unaffected by strike action in 2014, continued its robust operational performance, with growth in production resulting from higher concentrator recoveries and head grade, despite a community protest action which resulted in a loss of 9,000 ounces. Total output from Mogalakwena increased by 6% to 392,000 ounces (2014: 370,000 ounces), with a 5% increase in on-mine production of platinum to 368,000 ounces, while toll concentrating activities at a third-party concentrator yielded 24,000 ounces. As a result, the unit cost per platinum ounce (metal in concentrate) at Mogalakwena decreased by 20% to $1,369 per ounce, including the benefit of the weaker rand.

 

Production at Amandelbult increased from 219,000 ounces to 437,000 ounces owing to the mine returning to normal production following the strike, as well as an improved mining performance.

 

Unki mine in Zimbabwe produced 66,000 ounces, an increase of 7%, on the back of improved mining efficiencies and higher grades.

 

Rustenburg, including the Western Limb Tailings, increased output by 202,000 ounces to 485,000 ounces, largely driven by the recovery from the industrial action. Rustenburg was further consolidated into two mines; East and West mine, and is in the process of implementing its optimised mine plan. This has led to an increase in immediately available Ore Reserves, improved productivity and increased profitability.

 

Union mine, which has recovered in the aftermath of the 2014 strike, produced 141,000 ounces, an increase of 53,000 ounces, despite the closure of its decline section in 2014. Union's continued focus is on ensuring it improves performance in line with its optimised mine plan.

 

Section 54 safety stoppages affected production across almost all operations, predominantly in the first half of the year. The Department of Mineral Resources has been engaged to ensure the impact of such stoppages is limited and that Section 54 notices are only used as a last resort.

 

Production from the joint venture and associate portfolio, inclusive of both mined and purchased production, decreased by 2%. Lower output was largely the result of safety stoppages following fatal incidents at Bafokeng-Rasimone platinum mine, closure of two shafts at Bokoni and lower grades at Mototolo. This was partly offset by higher production from Kroondal.

 

Refined platinum production increased by 30% to 2,459,000 ounces (2014: 1,890,000 ounces) owing to production returning to normal following the 2014 strike, as well as operational improvements. In addition, a physical count of in-process metals that was conducted in the first half of the year led to an inventory increase of 130,000 ounces. The subsequent processing of this additional inventory resulted in refined platinum production of 2,459,000 ounces exceeding 2,337,000 ounces of produced metal.

 

In line with the return to normal production levels, refined palladium output increased by 30%, while refined production of rhodium was 33% higher.

 

As a result of higher refined production, platinum sales volumes increased by 17% to 2,471,000 platinum ounces.

 

Operational outlook  

It is anticipated that platinum production (metal in concentrate) will remain between 2.3-2.4 million ounces in 2016. The required process to put the Twickenham project on care and maintenance will commence in 2016.  

 

It is estimated that cash unit costs will be R19,250-R19,750 per platinum ounce (metal in concentrate) for 2016. Platinum believes the focus on cost rationalisation will enable it to meet its goals of keeping costs at below mining inflation.

 

DE BEERS

Key performance indicators(1)

 

Production

volume

Sales

volume

Price

Unit Cost

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

ROCE

 

'000
carats

'000

carats(2)

$/ct(3)

$/ct(4)

$m(5)

$m

$m

$m

 

De Beers

28,692

19,945

207

104

4,671

990

571

697

6%

  Prior year

32,605

32,730

198

111

7,114

1,818

1,363

689

13%

Debswana

20,368

-

178

34

-

 

379

352

101

-

  Prior year

24,237

-

172

31

-

 

604

579

114

-

Namdeb Holdings

1,764

-

553

273

-

 

147

120

30

-

  Prior year

1,886

-

581

283

-

 

207

177

37

-

South Africa

4,673

-

131

81

-

 

282

174

279

-

  Prior year

4,634

-

155

89

-

 

344

243

296

-

Canada

1,887

-

275

229

-

 

154

65

254

-

  Prior year

1,848

-

312

279

-

 

178

77

186

-

Trading

-

-

-

-

-

 

107

100

2

-

  Prior year

-

-

-

-

-

 

579

572

4

-

Other(6)

-

-

-

-

-

 

(79)

(240)

31

-

  Prior year

-

-

-

-

-

 

(94)

(285)

52

-

                       

 

(1)    Prepared on a consolidated accounting basis, except for production which is stated on a 100% basis.

(2)    Sales volumes on a 100% basis were 20.6 million carats (2014: 34.4 million carats).

(3)   Pricing for the mining business units based on 100% selling value post-aggregation.

(4)    Based on total cost per carat recovered, including depreciation.

(5)    Includes rough diamond sales of $4.1 billion (2014: $6.5 billion).

(6)  Other includes Element Six, downstream and acquisition accounting adjustments.

Financial and operational overview

De Beers' underlying EBIT decreased by 58% to $571 million (2014: $1,363 million). This was the result of weaker rough diamond demand and lower revenue, offset in part by tight operating cost control and favourable exchange rates.

 

Total De Beers revenue fell by 34% to $4.7 billion (2014: $7.1 billion), mainly driven by lower rough diamond sales, which declined by 36% to $4.1 billion. This was due to a 39% reduction in consolidated sales volumes to 19.9 million carats (2014: 32.7 million carats), partly offset by a 5% increase in the average realised diamond price.

 

This 5% increase in average realised diamond prices to $207/carat (2014: $198/carat) reflected a stronger product mix, despite an 8% lower average rough price index for the period. From the final Sight in 2014 to the final Sight in 2015, the De Beers rough price index declined by 15%.

 

Owing to weaker rough diamond demand, De Beers reduced production, costs and capital expenditure. As a result of the cost saving programmes, supported by favourable exchange rate movements, consolidated unit costs declined from $111/carat to $104/carat.

 

Markets

Global consumer demand for diamond jewellery in 2015 is expected to have declined marginally in US dollar terms from the record levels of 2014, as growth in the US was offset by the economic slowdown in China and the strength of the dollar.

 

The US, the largest market for polished diamonds at approximately 45% of global market value, again saw the strongest growth, albeit at a slower rate than in 2014. Demand for diamond jewellery by Chinese consumers was stable, while in India, diamond jewellery demand contracted in local currency terms.

 

Weaker than expected consumer demand in 2015 resulted in retailers reducing their demand for polished diamonds from the midstream manufacturers. A build-up in polished stocks in the midstream put downward pressure on polished prices, and reduced the midstream's willingness to purchase additional rough diamonds. This was exacerbated by a more stringent financing environment.

Operating performance

Mining and manufacturing

Rough diamond production decreased by 12% to 28.7 million carats (2014: 32.6 million carats) as De Beers reduced production in response to prevailing trading conditions.

 

Debswana's production decreased by 16% to 20.4 million carats, driven by a reduction in tailings production at Jwaneng, combined with the bringing forward of planned maintenance at both Jwaneng and Orapa. Debswana is focusing on improving reliability and cash costs, while maintaining flexibility, with Damtshaa, a satellite of Orapa, being placed onto temporary care and maintenance from 1 January 2016, affording the option of efficiently resuming production when market conditions allow.

 

In South Africa, production was in line with 2014, though below planned 2015 production. A decline at Venetia, owing to lower throughput and a reduction in tailings processing - again, in response to softer trading conditions - was offset by increased production at Kimberley. The completion of the sale of Kimberley Mines to Ekapa Minerals was announced on 21 January 2016.

 

Production at Namdeb Holdings decreased by 6%, as a result of a focus on lower grade mining areas in response to prevailing trading conditions. This impact was partly compensated by increased availability of the Mafuta vessel at Debmarine Namibia. The terms of a new 10-year sales agreement between De Beers and the Government of the Republic of Namibia are currently being finalised.

 

In Canada, production was in line with the prior year as lower grades at both Snap Lake and Victor were offset by improved throughput. In December 2015, De Beers announced that Snap Lake would be placed onto long term care and maintenance with immediate effect.

 

Element Six experienced challenging trading conditions throughout the year, primarily as a result of the effect on sales of the contraction in global oil and gas drilling activity. The resulting impact on revenue and operating margins was partly offset by a cost-containment programme, affecting both direct and indirect costs. The plant in Sweden has been closed, while the plants in South Africa and Ireland have been upgraded and restructured to optimise production and reduce the cost base.

 

Brands

ForevermarkTM continued to expand and is now available in 1,760 outlets - a 14% increase on 2014 - across 35 markets and, despite the challenging trading conditions, the brand achieved double-digit sales growth. In March 2015, a new grading and inscription facility was opened in Surat in India, with the potential to process up to $500 million worth of diamonds annually. In August, Forevermarkª announced the re-launch of the A Diamond is Foreverª marketing campaign, which began in the US and India in advance of the key selling season in the fourth quarter. De Beers also invested in additional holiday marketing campaigns to further stimulate diamond jewellery gift giving across the key US and China markets; these campaigns were received positively by the industry.

 

De Beers Diamond Jewellers maintained its focus on fast-growing markets, with 35 stores in 12 key consumer markets around the world, and continued to see strong sales in the higher-end market and with Chinese consumers worldwide.

 

Outlook

De Beers expects the US market to remain the main driver of growth in consumer demand in 2016. The extent of global growth will, however, be dependent upon a number of macro-economic factors, including the strength of the dollar and economic performance in China and its impact worldwide. Longer term, the sector is likely to continue to see benefit from a continuing rise in the world's middle classes in emerging markets, particularly in China and India.

 

Rough diamond demand in 2016 will be dependent upon consumer demand for diamond jewellery and the resultant levels of restocking required by retailers and, consequently, the midstream. Diamond production (on a 100% basis) for 2016 is forecast to be in the range of 26-28 million carats, subject to trading conditions. Consistent with this level of production, plans are in place to deliver $200 million of cash savings in production costs, overheads and capital expenditure.

 

 

BASE METALS & MINERALS

 

COPPER

Key performance indicators

 

Production volume

Sales

Volume

Realised price

C1 Unit Cost

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

ROCE

 

kt

kt(1)

c/lb

c/lb

$m

$m

$m

$m

 

Copper

709

706

228

154

3,539

942

228

659

3%

  Prior year

748

755

300

169

4,827

1,902

1,193

728

18%

Los Bronces

402

 

408

-

149

1,852

622

240

 

228

-

  Prior year

405

 

404

-

154

2,497

1,173

822

 

199

-

Collahuasi(2)

200

 

198

-

142

971

381

167

 

109

-

  Prior year

207

 

209

-

144

1,311

707

495

 

185

-

Other Operations

107

 

100

-

-

716

55

(63)

 

322

-

  Prior year

137

 

142

-

-

1,019

138

(8)

 

344

-

Projects and corporate

-

 

-

-

-

-

(116)

(116)

 

-

-

  Prior year

-

 

-

-

-

-

(116)

(116)

 

-

-

                               

(1)  Excludes 41kt third party sales from Mantos Blancos.

(2)  44% share of Collahuasi production, sales and financials.

Financial and operating overview

Underlying EBIT decreased by 81% to $228 million. This was largely due to a 20% decline in the average LME copper price, as well as lower by-product prices and a 7% decline in sales volumes. The decrease in revenue was partly mitigated by the effects of the weaker Chilean peso and a $208 million reduction in on-mine cash costs of the retained operations. These were driven by cost-reduction initiatives and productivity improvements, including a 16% reduction in headcount at Los Bronces and an 18% reduction at Collahuasi. At 31 December 2015, 197,631 tonnes of copper were provisionally priced at 214 c/lb. Provisional pricing of copper sales resulted in a negative underlying EBIT adjustment of $366 million (2014: $196 million).

Markets

 

2015

2014

Average market prices (c/lb)

Average realised prices (c/lb)

249

228

311

300

 

Growth in mine supply outweighed underlying demand growth in 2015, resulting in a market surplus for the metal. In particular, prices were adversely affected by weaker construction activity and manufacturing output in China, which accounts for almost half of global copper consumption. After a collapse at the start of the year, LME copper prices steadily gained ground, peaking close to $3/lb in May. Since then, bearish speculative funds have driven prices lower, culminating in a retreat towards $2/lb in the fourth quarter. Sell-offs by investors have been fuelled by volatile equity markets and concerns over China's economic outlook.

Operating performance

Production at Los Bronces was marginally lower at 401,700 tonnes, with the impact of the drought-related water restrictions on plant throughput offset by an increased cut-off grade and higher achieved recoveries. The water restrictions had a net negative impact on production of 18,000 tonnes. The operation is focused on its longer term water strategy, which aims to achieve greater resilience to extreme climatic conditions.
 

Anglo American's share of Collahuasi's production decreased by 3% to 200,300 tonnes owing to lower ore feed as a result of planned plant maintenance, as well as speed restrictions imposed on the two smaller processing lines in the second and third quarters following the detection of vibrations in the SAG mills. The vibration issue was successfully resolved, delivering a step-change in plant operating times in the fourth quarter, as part of the implementation of a wider plan to achieve stability in the operation of the plant. Higher-cost oxide production ramped down from 1 October, resulting in lost production of ~3,000 tonnes.

 

Production at El Soldado increased by 11% to 36,100 tonnes, attributable to higher grades and increased recovery arising from improved ore availability.

 

Operational outlook

Production in 2016 is expected to be in line with 2015, when adjusted for the disposal of Anglo American Norte and the curtailment of oxide production at Collahuasi, which have a combined impact of around 120,000 tonnes. A recovery in throughput at Los Bronces and Collahuasi is anticipated to be offset by expected lower grades, particularly at Los Bronces. Full year 2016 production guidance remains unchanged for the retained operations at 600,000-630,000 tonnes.

            

NICKEL

 

 

 

 

 

 

 

 

 

 

Production volume

Sales

volume

Price

Unit Cost

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

ROCE

 

 

t

t

c/lb

c/lb

$m

$m

$m

 

$m

 

 

Nickel segment

30,300

32,000

498

431

146

(3)

(22)

 

26

(1)%

 

  Prior year

37,200

36,100

731

491

142

28

21

 

14

1%

 

Nickel

30,300

32,000

498

431

146

9

(10)

 

26

(1)%

 

  Prior year

37,200

36,100

731

491

142

40

33

 

14

1%

Projects and corporate

 

-

-

-

-

-

(12)

(12)

 

-

-

  Prior year

 

-

-

-

-

-

(12)

(12)

 

-

-

                                     

Financial and operating overview

Underlying EBIT loss of $22 million was $43 million lower (2014: $21 million profit), principally driven by the lower nickel price and inflation, partly offset by the benefit to costs of the weaker Brazilian real.

 

The Barro Alto project continued to be capitalised until October, when commercial production was achieved. Barro Alto's underlying capitalised operating loss was $(46) million, a $198 million decrease over the prior year (2014: $152 million profit), owing to the ongoing furnace rebuild and consequent lower production volumes, lower nickel prices and inflation, partially offset by a net exchange rate benefit.

 

Nickel C1 unit costs decreased 12%, driven by the weaker Brazilian real, partly offset by inflation and lower production volumes owing to the furnace rebuilds.

 

Following the successful furnace rebuilds and subsequent ramp-up, Barro Alto C1 unit costs averaged 350 c/lb in the last quarter of the year, a significant improvement compared with 2012 (pre rebuild). This was mainly the result of higher throughput, lower energy consumption (owing to higher efficiencies being achieved at the new coal pulverisation plant and efforts to reduce electricity consumption), lower overhead costs and favourable exchange rates.

Markets

 

2015

2014

Average market price (c/lb)

Average realised price (c/lb)

536

498

765

731

 

The average LME nickel cash settlement price decreased by 30% to 536 c/lb as the impact of slower Chinese economic growth continued to exert downward pressure on commodity prices. World stainless steel production (the end-use for around 65% of all nickel) was flat year-on-year, matching 2014's record output. Nickel pig iron production in China declined by approximately 18%, or 85,000 tonnes, owing to the ongoing Indonesian nickel ore export ban; this led to a near-doubling of Chinese ferronickel imports in 2015, which reached a record high of 137,000 tonnes (Ni contained). This, in turn, resulted in an improvement in ferronickel market fundamentals, and a decrease in ferronickel discounts, through the year.

Operating performance

Nickel production decreased by 19% to 30,300 tonnes, reflecting the furnace rebuilds at Barro Alto. The rebuilds were concluded ahead of schedule, with the delivery of first metal from the second furnace occurring in September (more than one month ahead of plan), and production has now reached nameplate capacity of 2.4 million tonnes of ore feed per annum. At Codemin, production was in line with 2014 at 9,000 tonnes.

Operational outlook

Following the successful furnace rebuilds and faster than anticipated ramp-ups executed in 2015, nameplate capacity production should be achieved at Barro Alto through 2016, with total nickel output expected to be 45,000-47,000 tonnes.

 

NIOBIUM AND PHOSPHATES

 

 

 

 

 

Production volume

Sales

volume

Price

Unit Cost

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

ROCE

 

Kt

Kt

$/t

$/t

$m

$m

$m

$m

 

Niobium and Phosphates

-

-

-

-

544

146

119

50

14%

  Prior year

-

-

-

-

666

152

124

239

16%

Niobium

6.3

5.1

-

-

111

40

33

26

6%

  Prior year

4.7

4.6

-

-

180

75

69

198

15%

Phosphates

1,111

1,060

479

-

433

111

91

24

30%

  Prior year

1,113

1,097

487

-

486

88

66

41

16%

Projects and corporate

-

-

-

-

-

(5)

(5)

-

-

  Prior year

-

-

-

-

-

(11)

(11)

-

-

                         

 

Financial and operating overview

Niobium

Underlying EBIT of $33 million was 52% lower (2014: $69 million), as a result of the capitalisation of sales associated with the ramp-up of Boa Vista Fresh Rock (BVFR), inflation and rehabilitation provision increases, partly compensated by the benefit of the weaker Brazilian real.

 

Underlying EBIT of $17 million from BVFR was capitalised in 2015, as the project had not reached commercial production.

 

Phosphates

Underlying EBIT of $91 million was 38% higher (2014: $66 million), mainly due to the positive impact of the weaker Brazilian currency on operating costs and lower study costs, partly offset by inflation, reduced sales volumes and lower realised pricing (including the impact of the weaker Brazilian real on prices).

Markets

Niobium

Despite a strong first six months, worldwide demand for ferroniobium has softened, while global production capacity increased slightly. This decline in demand was driven by the challenging conditions in the Chinese steel industry and lower investments in oil and gas pipeline steel. As a result, average niobium prices weakened across all regions.

 

Phosphates

The average MAP CFR Brazil price was marginally lower at $479/tonne (2014: $487/tonne), mainly as a result of softer demand in Brazil and lower than expected Indian imports in the second half.

Operating performance

Niobium

Production increased by 34% to 6,300 tonnes, mainly due to the ongoing ramp up of the BVFR plant (which achieved first production in late 2014). The plant reached 69% of nameplate capacity in December 2015.

 

Phosphates

Production of 1.1 million tonnes of fertiliser was broadly in line with the prior year. Phosphoric acid production decreased by 10%, mainly due to repairs at the Cubatao processing plant. Phosphoric acid is a key component of dicalcium phosphate (DCP); consequently DCP production was 10% lower owing to the priority given to phosphoric acid sales in Cubat‹o.

Operational outlook

Niobium

Production from installed capacity is expected to increase to 6,800 tonnes once the BVFR plant reaches nameplate capacity in the third quarter of 2016. This, when combined with certain metallurgical debottlenecking activities currently being implemented, will take the total annual capacity to 9,000 tonnes.

 

Phosphates

Fertiliser and DCP production in 2016 is expected to be broadly similar to 2015. Phosphoric acid production is expected to increase to around 300,000 tonnes, driven by improved performance at Cubatao following the maintenance repairs in the second half of 2015.

 

IRON ORE AND MANGANESE

Key performance indicators

 

Production

volume

Sales

volume

Price

Unit cost

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

ROCE

 

Mt(1)

Mt

$/tonne(2)

$/t

$m

$m

$m

$m

 

Segment

-

-

-

-

3,390

1,026

671

1,422

5%

  Prior year

-

-

-

-

5,176

2,286

1,957

2,685

12%

Kumba Iron Ore

44.9

47.8

54

31

2,876

1,011

739

523

26%

  Prior year

48.2

45.3

91

34

4,388

2,162

1,911

763

60%

Iron Ore Brazil

9.2

8.5

41

60

-

(20)

(21)

899

(1)%

  Prior year

0.7

0.2

57

-

-

(29)

(34)

1,922

(1)%

Samancor(3)

3.3

3.3

-

-

514

104

22

-

4%

  Prior year

3.6

3.7

-

-

788

251

178

-

22%

Projects and corporate

-

-

-

-

-

(69)

(69)

-

-

  Prior year

-

-

-

-

-

(98)

(98)

-

-

 

(1)    Iron Ore Brazil production is Mt (wet basis).

(2)    Prices for Kumba Iron Ore (Kumba) are the average realised export basket price (FOB Saldanha). Prices for IOB are average realised export basket price (FOB Au) (wet basis).

(3)  Production, sales and financials include ore and alloy.

 

Financial and operating overview

Kumba

Underlying EBIT decreased by 61% to $739 million (2014: $1,911 million), mainly attributable to the 42% fall in the iron ore benchmark price to an average of $56/tonne. Realised FOB export prices averaged $54/tonne, 42% lower than in 2014. Total cash costs, however, declined by 18%, with costs associated with the 10% increase in waste mined more than offset by the weakening of the South African rand against the dollar. Kumba reduced controllable costs by $8/tonne to achieve an average cash break-even price of $49/tonne (CFR China) in 2015. In 2016, Kumba is targeting to be cash break-even at below an iron ore price of $40/tonne. These improvements include savings in capital expenditure, operating costs, and productivity gains in mining and processing operations.

 

Sales of 47.8 Mt (2014: 45.3 Mt) were achieved, an increase of 6%, following improved logistics performance and the shipment of 3.4 Mt through the multi-purpose terminal at the Saldanha port. As a result, Kumba reduced its Saldanha port stockpile to 1.2 Mt, while total finished-product stock decreased to 4.7 Mt by year end (2014: 6.5 Mt).

 

Iron Ore Brazil

Underlying EBIT loss was $21 million (2014: $(34) million), net of a $251 million loss that was capitalised as the Minas-Rio project continued to ramp up. The project is expected to reach commercial production during 2016, although it will remain in ramp-up throughout the year.

 

Samancor

Underlying EBIT decreased by $156 million to $22 million, driven primarily by lower manganese prices and a

9% decrease in ore sales.

Markets

Iron ore

 

2015

2014

Average market prices (IODEX 62% Fe CFR China spot price - $/tonne)

Average realised prices (Kumba export - $/tonne) (FOB Saldanha)

Average market prices Iron ore (MB 66% Fe Concentrate CFR - $/tonne)

Average realised prices (Minas-Rio - $/tonne) (FOB wet basis)

56

54

67

41

97

91

112

57

 

 

Seaborne iron ore prices continued their downward trend in 2015, with the Platts IODEX 62% Fe CFR China spot price falling by 42% to average $56 per dry metric tonne. Overcapacity in the Chinese steel sector has resulted in steel prices touching record lows. A shift in the focus of Chinese mills to cost rather than productivity has led to reduced price differentials across iron ore grades. In addition, the seaborne iron market remained oversupplied throughout the year, further depressing the iron ore price, although there was a noticeable slowdown in supply growth as projects reached execution and high-cost marginal suppliers withdrew from the market.

 

Kumba and ArcelorMittal SA have amended the pricing terms of their supply agreement from a cost-based to an export-parity price. In the current market environment, which presents significant challenges for the mining and steel industries in South Africa, this amendment will align prices charged to domestic and export customers. 

 

Manganese

2015 saw significant weakness in both manganese ore and alloy prices, with the decline in steel output in China and all other major steel producing regions exacerbating manganese ore market volatility. Supply cuts started to materialise as prices continued to slide through the year, leaving 70% of the industry in a loss-making position. The index ore price (44% Mn CIF China) declined by 57%, ending the year at $1.86/dmtu.

Operating performance

Kumba

Production was down by 7% to 44.9 Mt owing to mining constraints at Sishen, experienced largely in the second half.

 

Production at Sishen declined by 12% to 31.4 Mt, mainly arising from difficulties in providing the DMS plant with the correct quality feedstock because of a shortage of sufficient exposed high grade ore required for blending. In order to improve exposed ore levels and increase operational flexibility, it was necessary to mine more waste material, which increased by 19% to 222.2 Mt.

 

During the year the deteriorating price environment necessitated a further optimisation of the Sishen mine plan. It was decided to reconfigure the Sishen pit to a lower cost shell to safeguard the mine's viability at lower prices.

 

In the medium term, the mine will also be exploring further opportunities to utilise spare plant capacity, including the use of low grade stockpiles. It is expected that the Reserve Life will remain stable at ~15 years due to the lower production rates and will be reviewed and finalised during 2016.

 

At Sishen, implementation of the Operating Model has already seen a 24% improvement in efficiency in internal waste mining activity at the North Mine, where work management aspects of the model were introduced in August 2014. The Operating Model was implemented across pre-strip mining and heavy equipment activities in July 2015 and is working well.

 

At Kolomela, a revised mining plan was implemented, including cessation of mining at one of the pits to conserve cash. Efficiencies and throughput at the plant continued to improve, resulting in a 4% increase in production to 12.1 Mt for the year. To feed the plants at this rate, waste mining increased to 45.7 Mt from the previously guided 44-45 Mt.

 

Thabazimbi mine produced 1.4 Mt. During the year, Kumba announced closure plans, with mining ceasing at the end of September 2015. Material mined previously was processed during the final quarter of 2015 and is expected to continue into the second quarter of 2016. Closure procedures have been implemented and all activity at the mine is expected to cease at the end of the first half of 2016.

 

Iron Ore Brazil

Minas-Rio continued to ramp up in 2015, with increases in quarter-on-quarter production throughout the year. Ramp up will continue in 2016. Full year production in 2015, at 9.2 Mt (wet basis), was lower than the original market guidance of 11-14 Mt (wet basis), mostly due to filtration plant adjustments being required, together with water availability and ore quality issues. Following recent rainfall, water conditions are now closer to normal, while the iron ore variability is expected to improve as the mining footprint expands over time. Export sales amounted to 8.5 Mt (wet basis).

 

Samancor

Production of manganese ore declined by 6% to 3.1 Mt (attributable basis). Production volumes were negatively affected by the temporary suspension of operations at both Mamatwan and Wessels following a fatality at Mamatwan mine in November. The suspension of the operations remained in effect until the completion of the strategic review, with mining activity restarted in February 2016. The decrease in production in South Africa was slightly offset by increased output from Australia, with the GEMCO operations delivering record production in the second half of the year.

 

Production of manganese alloys decreased by 25% to 213,600 tonnes (attributable basis) following the suspension of operations at Metalloys in South Africa.

Operational outlook

Kumba

Kumba will target a cash break-even price of below $40/t CFR for 2016. Waste movement is expected to be materially below previous guidance of ~230 Mt, at 135 -150 Mt for 2016-2020, while production guidance for 2016 is reduced from 36 Mt to ~27 Mt.

 

In the medium term, the mine will continue to explore opportunities to fill any spare plant capacity through the use of low grade stock piles.

 

At Kolomela the mine's annual production has been revised upwards to 13 million tonnes per annum (Mtpa) from 2017, with 12 Mt expected in 2016.

 

Iron Ore Brazil

Operational challenges experienced in 2015, together with the confinement of the mining area owing to licensing constraints, have resulted in production guidance for 2016 being revised downwards to around 15-18 Mt (wet basis).

 

Iron Ore Brazil's FOB cash cost is expected to be $26-$28 per tonne(1).

 

Samancor

A strategic review of the South African Manganese operations has now been completed with mining activity to restart at South African Manganese operations in February 2016, although at a substantially reduced rate and with greater flexibility. Subject to market conditions, the Hotazel mines will ramp up to a saleable production rate of 2.9 Mtpa (100% basis), taking approximately 900 ktpa (23%) of saleable production out of the market for the foreseeable future. Optimised mine plans, redundancies and other restructuring initiatives are expected to reduce costs, with stay-in-business capital expenditure also expected to decline by approximately 80% in 2016.

 

 

 

(1)        Average over first 22 years when friable itabirite is mined

 

Legal

In December 2013, the Constitutional Court ruled that Sishen Iron Ore Company (Pty) Ltd (SIOC) held a 78.6% undivided share of the Sishen mining right and that, based on the provisions of the Mineral and Petroleum Resources Development Act (MPRDA), only SIOC can apply for, and be granted, the residual 21.4% share of the mining right at the Sishen mine. The grant of the mining right may be made subject to such conditions considered by the Minister of Mineral Resources ('the Minister') to be appropriate. SIOC applied for the residual right in early 2014.

 

SIOC received notice from the Department of Mineral Resources (DMR) that the Director General of the DMR had consented to the amendment of SIOC's mining right in respect of the Sishen mine to include the residual 21.4% undivided share of the mining right for the Sishen mine. The consent letter is subject to certain conditions (which are described by the DMR as "proposals"). The conditions contained in the Letter of Grant relate substantively to domestic supply, support for skills development, research and development, and procurement.

 

Until the legal and practical implications of the proposed conditions have been clarified with the DMR, SIOC is unable to accept the conditions.

 

Section 96 of the MPRDA allows for an internal appeal to the Minister. SIOC therefore submitted an internal appeal to the Minister, as required by the MPRDA. SIOC has not yet received a response to its appeal.

 

In the interim, SIOC continues to engage with the DMR in relation to the proposed conditions in order to achieve a mutually acceptable solution.

 

 

COAL

Key performance indicators

 

Production volume

Sales

volume

Price

Unit cost

Revenue

Underlying EBITDA

Underlying EBIT

Capex

ROCE

 

Mt(1)

Mt(2)

$/t(3)

($/t)(4)

$m

$m

$m

$m

 

Segment

94.9

96.8

-

-

1,046

457

941

9%

 Prior year

100.2

100.2

-

-

5,808

1,207

458

1,045

8%

Australia/
Canada

33.5

34.0

90

55

2,374

586

190

837

6%

 Prior year

33.2

33.8

111

71

2,970

543

(1)

952

(1)%

South Africa

50.3

51.6

55

39

1,893

345

230

104

19%

 Prior year

55.8

54.8

70

45

2,083

463

350

93

30%

Colombia

11.1

11.2

55

31

621

168

90

-

11%

 Prior year

11.2

11.3

67

37

755

255

163

-

15%

Projects and
corporate

-

-

-

-

-

(53)

(53)

-

-

 Prior year

-

-

-

-

-

(54)

(54)

-

-

 

(1)  Production volumes are saleable tonnes.

(2)    South African sales volumes exclude non-equity traded sales volumes of 3.4 Mt (2014: 1.3 Mt).                   

(3)    Australia and Canada is the weighted average metallurgical coal sales price achieved. South Africa is the weighted average export thermal coal price achieved.

(4)    FOB cost per saleable tonne, excluding royalties. Australia/Canada excludes study costs/Callide. South Africa unit cost is for the export operations.

Financial and operating overview

Australia and Canada

Australia and Canada underlying EBIT increased by $191 million to $190 million. This was the result of a 6% rise in production in Australia, substantial cost reductions and a weaker Australian dollar also benefiting the cost base. These positives were offset by a 19% reduction in the average quarterly hard coking coal (HCC) benchmark coal price. Placing Peace River Coal onto long term care and maintenance resulted in an underlying EBIT benefit of $81 million.

 

Underground productivity improvements, including an Australian longwall production record at Capcoal's Grasstree operation, and focused cost-reduction initiatives across labour, material inputs and equipment hire, resulted in the lowest unit costs since 2007. Export FOB cash unit costs ($55/tonne) were 23% lower in US dollar terms, and 7% lower in local currency terms.

South Africa

South Africa's underlying EBIT of $230 million decreased by 34%. This was the result of a 21% reduction in the export thermal coal price and the effect of industrial action in October, partly offset by a 13% increase in export sales volumes, with a record railing and shipping performance, as well as cost reductions and the benefit of the weaker rand. The export sales performance generated an additional $73 million of cash.

 

Export mine US dollar unit costs were 13% lower, with local currency costs flat year-on-year despite inflationary pressures and a 4% decline in production, supported by a 7% improvement in underground operations equipment performance and a 12% improvement in open cut operations.

Colombia

Underlying EBIT decreased by 45% to $90 million (2014: $163 million), mainly owing to weaker prices reducing underlying EBIT by $90 million and a weather-related decline in production. This was compensated in part by lower costs as a result of a comprehensive cost-control programme and favourable exchange rates.

 

Markets

Metallurgical coal

 

2015

2014

Average market prices ($/tonne)(1)

Average realised prices ($/tonne)(2)

102

90

125

111

 

(1)  Represents the quarterly average benchmark for premium low-volume hard coking coal.

(2)    Average realised price of various grades of metallurgical coal including hard and semi-soft coking coal and PCI coal.

 

Metallurgical coal prices showed a steady decline across 2015, driven by a decline in imports into China and weaker producer currencies. Strong steel exports from China had a negative effect on global steel prices and margins, putting further pressure on raw material prices. Metallurgical coal spot prices averaged $90/tonne(1), down 19%. High-cost metallurgical coal supply continues to exit the market, in particular from the US, while Australian supply was relatively stable in 2015.

 

Thermal coal

 

2015

2014

Average market price ($/t, FOB Australia)

Average realised prices - Export Australia ($/t, FOB)

Average realised prices - Export South Africa ($/t, FOB)

Average realised prices - Domestic South Africa ($/t)

Average realised prices - Colombia ($/t, FOB)

59

55

55

20

55

71

72

70

19

67

 

Thermal coal prices declined by 17% as overall demand contracted. Chinese import demand in particular has continued to soften, while other growth markets, notably India, have not been able to offset this decrease in demand. In response, on the supply side, Indonesian volumes are being withdrawn from the market.

Operating performance

Australia and Canada

Total export metallurgical coal production increased by 1%, despite Peace River Coal (which produced 1.5 Mt in 2014) being placed onto long term care and maintenance since December 2014.

 

In Australia, production increased by 6%, benefiting from a strong performance at the underground longwall operations, with a record performance from Capcoal's Grasstree underground operation.

 

Australian export metallurgical coal production was 9% higher, with increases from the underground operations compensating for lower open cut volumes as capacity at the shared Capcoal Complex plant was given to the higher margin Grasstree underground mine.

 

Production from underground operations was 33% higher, largely as a result of a step-change in productivity at Capcoal's Grasstree underground operation following the implementation of bi-directional cutting. Production from Moranbah increased by 17%, despite equipment design issues, which were successfully rectified in the extended longwall move in the third quarter, with a stepped improvement in production in November and December.

 

Production at the Australian open cut operations decreased by 4%, with a robust performance from Callide and Jellinbah being offset by lower volumes at Capcoal, where plant and rail capacity was prioritised for Capcoal's Grasstree underground operation's higher-margin coal.

 

 

(1)        TSI Premium HCC FOB Australia East Coast Port $/tonne.

 

 

South Africa

Export production totalled 17.4 Mt, a 4% decrease, owing to the planned closure of a section at Goedehoop and lower production at Mafube as it transitions to a new mining area. Productivity improvements resulted in record production at Goedehoop and Zibulo following the implementation of elements of the Anglo American Operating Model. Productivity improvement plans at Landau were offset by coal sector wage-related industrial action in October, which resulted in the loss of 0.6 Mt (3%) of full year production.

 

Export sales rose by 13% to 19.9 Mt as a result of a planned drawdown of stocks, facilitated by a record railing and shipping performance.

 

Production from the domestic mines decreased by 15% to 27.7 Mt, owing to reduced offtake by Eskom at New Vaal and New Denmark, exacerbated by unplanned maintenance on the dragline at Isibonelo.

Colombia

Anglo American's share of Cerrejón's output of 11.1 Mt decreased by 1% as the operation was affected by adverse weather conditions, impacting production.

Operational outlook

Australia and Canada

Metallurgical coal production in 2016 is expected to increase to 21-22 Mt, with the first longwall coal from Grosvenor due in July and subsequent ramp-up through the second half of the year.

 

Export Thermal Coal

In 2016, export production from South Africa and Colombia is expected to be 28-30 Mt.

 

 

CORPORATE AND OTHER

Key performance indicators

 

Revenue

Underlying

EBITDA

Underlying

EBIT

Capex

 

$m

$m

$m

$m

Segment

925

(11)

(64)

16

Prior year

1,859

(88)

(215)

42

Other Mining and Industrial

921

110

64

3

Prior year

1,854

162

62

2

Exploration

-

(152)

(154)

-

Prior year

-

(180)

(181)

-

Corporate activities and unallocated costs

4

31

26

13

Prior year

5

(70)

(96)

40

Financial and operating overview

Other Mining and Industrial

Underlying EBIT of $64 million was $2 million higher (2014: $62 million), mainly attributable to lower corporate and other costs, largely offset by the lower contribution from Anglo American's interest in the Lafarge Tarmac joint venture, which was disposed of on 17 July 2015.

 

Lafarge Tarmac joint venture

Anglo American's share in the underlying EBIT of the joint venture was $60 million for the six months prior to

transfer to Held For Sale at 30 June 2015, an $18 million decrease compared to the full year share in 2014.

 

On 17 July 2015, Anglo American announced that it had completed the sale of its 50% ownership interest in Lafarge Tarmac Holdings Limited (Lafarge Tarmac) to Lafarge SA (Lafarge). Anglo American received provisional cash proceeds of approximately £992 million ($1,559 million), constituting the agreed minimum consideration of £885 million set out in the July 2014 binding agreement, and approximately £107 million of working capital and other adjustments. The final price has since been agreed at the same level as the provisional price after finalisation of the post-closing review process.

 

Tarmac Middle East

The divestment of Anglo American's interests in the majority of the Tarmac Middle East operations had completed by January 2016. Disposal of one remaining interest is well advanced. 

 

Exploration

Anglo American exploration expenditure of $154 million decreased by 15%, following reductions in iron ore, thermal coal, diamonds and polymetallics exploration costs. The decreases were mainly attributable to an overall reduction in drilling activities.

 

Corporate activities and unallocated costs

Underlying EBIT was $26 million, an increase of $122 million (2014: $96 million loss).

 

Corporate costs decreased by 8% ($46 million), of which $61 million represented a foreign exchange gain compared to 2014, partially offset by inflationary cost increases of $17 million. This reduction in corporate costs was mitigated by a 10% fall in the recharge and allocation of corporate costs to business units of $46 million, reflecting the lower corporate cost base.

 

A year-on-year gain of $122 million was recognised in the Group's self-insurance entity, reflecting lower net claims and settlements during 2015.

 

For further information, please contact:

 

Media

 

Investors

UK

James Wyatt-Tilby

Email: james.wyatt-tilby@angloamerican.com

Tel: +44 (0)20 7968 8759

 

UK

Paul Galloway

Email: paul.galloway@angloamerican.com

Tel: +44 (0)20 7968 8718

 

Marcelo Esquivel

Email: marcelo.esquivel@angloamerican.com

Tel: +44 (0)20 7968 8891

 

 

Edward Kite

Email: edward.kite@angloamerican.com

Tel: +44 (0)20 7968 2178

South Africa

Pranill Ramchander

Email: pranill.ramchander@angloamerican.com

Tel: +27 (0)11 638 2592

 

Shamiela Letsoalo

Email: shamiela.letsoalo@angloamerican.com

Tel: +27 (0)11 638 3112

 

 

 

Notes to editors:

Anglo American is a globally diversified mining business. Our portfolio of world-class competitive mining operations and undeveloped resources provides the raw materials to meet the growing consumer-driven demands of the world's developed and maturing economies. Our people are at the heart of our business. It is our people who use the latest technologies to find new resources, plan and build our mines and who mine, process and move and market our products - from diamonds (through De Beers) to platinum and other precious metals and copper - to our customers around the world.

 

As a responsible miner, we are the custodians of those precious resources. We work together with our key partners and stakeholders to unlock the long-term value that those resources represent for our shareholders, but also for the communities and countries in which we operate - creating sustainable value and making a real difference.

www.angloamerican.com

 

     

 

Webcast of presentation: 

A live webcast of the results presentation, starting at 9.00am UK time on 16 February 2016, can be accessed through the Anglo American website at www.angloamerican.com

 

Note: Throughout this results announcement, '$' denotes United States dollars and 'cents' refers to United States cents; underlying EBIT is operating profit presented before special items and remeasurements and includes the Group's attributable share of associates' and joint ventures' underlying EBIT; special items and remeasurements are defined in note 7 to the Condensed financial statements. Underlying earnings, is calculated as set out in note 6 and note 10 to the Condensed financial statements. Underlying EBITDA is underlying EBIT before depreciation and amortisation in subsidiaries and joint operations and includes the Group's attributable share of underlying EBITDA of associates and joint ventures before depreciation and amortisation. Tonnes are metric tons, 'Mt' denotes million tonnes and 'kt' denotes thousand tonnes, unless otherwise stated.

 

Forward-looking statements:

This announcement includes forward-looking statements. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding Anglo American's financial position, business and acquisition strategy, plans and objectives of management for future operations (including development plans and objectives relating to Anglo American's products, production forecasts and reserve and resource positions), are forward-looking statements. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Anglo American, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Anglo American's present and future business strategies and the environment in which Anglo American will operate in the future. Important factors that could cause Anglo American's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of global demand and commodity market prices, mineral resource exploration and development capabilities, recovery rates and other operational capabilities, the availability of mining and processing equipment, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, the availability of sufficient credit, the effects of inflation, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or safety, health, environmental or other types of regulation in the countries where Anglo American operates, conflicts over land and resource ownership rights and such other risk factors identified in Anglo American's most recent Annual Report. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this announcement. Anglo American expressly disclaims any obligation or undertaking (except as required by applicable law, the City Code on Takeovers and Mergers (the "Takeover Code"), the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Conduct Authority, the Listings Requirements of the securities exchange of the JSE Limited in South Africa, the SWX Swiss Exchange, the Botswana Stock Exchange and the Namibian Stock Exchange and any other applicable regulations) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Anglo American's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

Nothing in this announcement should be interpreted to mean that future earnings per share of Anglo American will necessarily match or exceed its historical published earnings per share.

 

Certain statistical and other information about Anglo American included in this announcement is sourced from publicly available third party sources. As such, it presents the views of those third parties, though these may not necessarily correspond to the views held by Anglo American.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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