One of world’s largest mining company’s Anglo American PLC (LON:AAL) managed to reduce its’ net debt by $1bn in the first half of 2016. The company is now on track to deliver a promised reduction in debt to $10bn by the end of the year, despite facing persistent difficult conditions in the commodities market.
Net debt decreased to $11.7 billion in the first half of 2016, down from $12.9bn at the end of 2015.
Anglo American earnings decrease due to persistently low commodity prices
The company reported operational profits before interest and taxation of 1.382bn. This represents a decrease of 27% from the first half of 2015. The figure includes shares in associates and joint venture activities.
Continued decreases in revenue can be attributed to persistent lower commodity prices. Price falls in commodities wiped out $1.2bn in EBIT this semester. Weaker currencies in producer countries partially reduced the impact, saving around $0.9bn. The company also undertook major cost reductions.
The earnings report for the first half of the year still shows vast reductions in revenues. However, the company managed to beat analysts’ expectations through rigorous cost cutting measures.
Earnings per share stood at 54 cents, compared to an expected 25.4 cents.
The company did not pay an interim dividend of their strategic plan outlined last December.
Anglo American sold $1.5bn worth in assets in the first half of 2016. The company expects to double this figure by the end of the year.
The largest share of underlying revenues was contributed by De Beers which generated $379bn. Anglo American holds an 85% stake in the leading company in the diamond industry. The company therefore benefited greatly from the company’s latest deal with Namibia. In May this year De Beers signed a ten-year sales agreement with the Government of the Republic of Namibia for the sorting, valuing and sale of Namdeb Holdings’ diamonds.
Reducing debt to $10bn
The company reported that it managed to strengthen its’ balance sheet “through capital and cost discipline and expects to deliver net debt of less than $10 billion at the end of 2016”
Chief Executive of Anglo American, Mark Cutifani stated:
“Sharply lower prices across our products were mitigated by our self-help actions on costs, volumes, working capital and capital expenditure, together contributing to the $1.1 billion of attributable free cash flow generated in the first half of 2016. Across the business, our copper equivalent unit costs have reduced by 19% in US dollar terms, representing a 36% total reduction since 2012.”
The company also stated that it aims to deliver 12% more produce than in the same time period in 2012 – despite a 35% reduction in assets and 40% reduction in labour capacity.
“We will continue to divest non-core assets using strict value thresholds as we continue to reduce our debt levels and position the core business on a foundation to deliver sustainably positive cash flows.” Cutifani added.
Anglo American PLC (LON: AAL) share prices jumped 6.3% in early morning trading to reach a high of 849.2.
At 11.52am shares were trading at 841.4p (+5.28%).
