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Anglo American says cost inflation, lower production and metal prices impacted its financial results in H1 2022

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(Kitco News) - Anglo American (LSE: AAL) reported today that for the six months ended 30 June 2022 (H1 2022), its copper production was 273,400 tonnes or 17% lower than the prior period (H1 2021: 330,000 tonnes), due to planned lower grades at Los Bronces and Collahuasi.

De Beers' rough diamond production increased by 10% to 16.9 million carats (H1 2021: 15.4 million carats), reflecting a strong operational performance and higher planned levels of production to meet continued strong demand for rough diamonds, while the first quarter of 2021 was affected by particularly high rainfall in southern Africa.

The company said that its nickel production decreased by 5% to 19,600 tonnes (H1 2021: 20,700 tonnes), primarily due to lower ore grades as a result of licensing delays that are now resolved, as well as the impact of heavy rainfall.

PGM production (metal in concentrate) decreased by 4% to 1,987,500 ounces (H1 2021: 2,079,100 ounces), principally due to lower grade at Mogalakwena, partially offset by increased production from Mototolo, Unki and Amandelbult.

In addition, Anglo American said that its iron ore production decreased by 14% to 27.5 Mt (H1 2021: 31.9 Mt), steelmaking coal production decreased by 22% to 4.8 Mt (H1 2021: 6.2 Mt), and manganese ore production was in line with the prior period at 1.8 Mt (H1 2021: 1.8 Mt).

"The impact of adverse weather and planned lower grades at many of our operations contributed to a 9% production decrease on a copper equivalent basis,” Anglo American said.

The company noted that its copper equivalent unit costs increased by 18% in US dollar terms, largely due to lower production volumes and inflationary pressures, particularly diesel.

Anglo American's profit attributable to equity shareholders decreased to $3.7 billion (H1 2021: $5.2 billion), underlying earnings were $3.8 billion (H1 2021: $5.3 billion), while operating profit was $6.7 billion (H1 2021: $11.0 billion).

The company added that attributable free cash flow of $1.6 billion (H1 2021: $5.6 billion) was driven largely by strong prices in the first quarter that declined towards the end of the period in tandem with increasing cost inflation.

"The war in Ukraine, and resulting trade sanctions on Russia, have restricted the supply of certain key commodities to the market, and caused further disruption to already stretched global supply chains,” the company said.

Anglo American sees 'steady' diamond demand in sixth sales cycle, warns of risks to consumer sentiment

This has resulted in higher prices for energy, agricultural and other commodities, exacerbating broader inflationary pressures across the global economy, and contributing to more aggressive interest rate rises by central banks than had been expected and an associated strengthening of the dollar, the company noted.

"While the medium and longer term demand outlooks for our products remain strong – not least given the role these play in sustaining global economic development for a growing population and enabling the decarbonization of energy and transport systems – these deteriorating macro-economic conditions are contributing to a weaker near term outlook for demand, due to weaker investment and slower real income growth,” Anglo American continued.  

However, the company pointed out that associated pressures on its operating costs have been partly mitigated by weakening commodity producer country currencies, including in Australia, Brazil, Chile and South Africa.

Anglo American is a leading producer of diamonds (through De Beers), copper, platinum group metals, the steelmaking ingredients of iron ore and metallurgical coal, and nickel - with crop nutrients in development and thermal coal operations planned for divestment.

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