Anglo American Preliminary Results 2017

22 February 2018

Anglo American Preliminary Results 2017

Free cash flow increased by 93% to $4.9 billion, halving net debt to $4.5 billion

 

Mark Cutifani, Chief Executive of Anglo American, said: "We have delivered a 93% increase in attributable free cash flow, almost halving net debt to $4.5 billion at the year end. These strong financial results benefit from transformed productivities and efficiencies across our business - including a 28% productivity improvement in 2017 alone - together with our portfolio upgrading and improved prices for many of our products. Our increased dividend for the second half equates to our targeted level of 40% of underlying earnings, totalling $1.02 per share for the year as a whole.

 

"We exceeded our cost and volume improvement target for the year, achieving $1.1 billion of underlying EBITDA benefit. Over the last five years, we have now delivered a $4.2 billion annual underlying EBITDA improvement. While we have already driven a material operational turnaround, we believe there is significant additional upside within the business both through further operating gains and from selected organic growth options. As part of how we run the business, we are therefore targeting an additional $3-4 billion annual run‑rate improvement by 2022 from production volumes, productivity improvements and cost reductions."

 

Highlights - year ended 31 December 2017

·      Delivered attributable free cash flow* of $4.9 billion, a 93% increase

·      Reduced net debt* to $4.5 billion, a 47% reduction, equal to 0.5x net debt / EBITDA

·      Generated underlying EBITDA* of $8.8 billion, a 45% increase

·      Profit attributable to equity shareholders doubled to $3.2 billion

·      Achieved cost and volume improvements of $1.1 billion - in excess of target

·      Targeting additional $3-4 billion annual underlying EBITDA run-rate improvement by 2022

·      Increased dividend of 54 US cents per share for the second half, equal to 40% of second half underlying earnings*

-     Total dividend payable for 2017 of $1.02 per share

 

Year ended US$ million, unless otherwise stated	31 December 2017	31 December 2016	Change
Underlying EBITDA*	8,823	6,075	45%
Underlying earnings*	3,272	2,210	48%
Profit attributable to equity shareholders of the Company	3,166	1,594	99%
Underlying earnings per share* ($)	2.57	1.72	49%
Earnings per share ($)	2.48	1.24	100%
Dividend per share ($)	1.02	-	-
Group attributable ROCE*	19%	11%	-
Notes to the highlights and table are shown at the bottom of this section.

 

 

 

 

Words with this symbol * are defined as Alternative Performance Measures ('APMs'). For more information on the APMs used by the Group, including definitions, please refer to page 57.

 

 

Safety and environmental performance

Anglo American's safety record in 2017 was the Group's single disappointment. Nine people lost their lives in fatal accidents in 2017, all in South Africa. Every leader in the business understands it is unacceptable to continue to work where there is a likely consequence of injury.  As a result, significant further operational interventions to manage activity risks to end fatal incidents across all operations have taken place. Safety continues to be the Group's most critical area of focus, and while significant progress over recent years must be recognised ‒ reducing safety incident rates by more than 40% ‒ there is still a long way to go on the journey to zero harm.

 

Environmental incidents have been reduced by more than 90% since 2013, with continued focus on detailed operational planning across Anglo American's operating interests. Good progress continues to be made towards greater water and energy efficiency, as part of the overall business improvements.

 

Operational and financial review of Group results for the year ended

31 December 2017

 

SUMMARY

Anglo American's profit attributable to equity shareholders doubled to $3.2 billion (2016: $1.6 billion). Underlying earnings were $3.3 billion (2016: $2.2 billion), while operating profit was $5.5 billion (2016: $1.7 billion).

Group underlying EBITDA increased by 45% to $8.8 billion (2016: $6.1 billion), benefiting from strong bulk commodity and copper prices. Cost and volume improvements across the Group benefited underlying EBITDA by $1.1 billion, exceeding the $1.0 billion target for the year, driven by the ongoing ramp-up of Minas-Rio and strong sales volumes at De Beers in the first quarter. There were also productivity improvements at Kumba, with increased fleet efficiency and higher plant yields, while Platinum made a solid recovery from the operational challenges experienced in 2016. The impact of the Group's ongoing cost-efficiency programme also played a significant role in exceeding our improvement target for the year.

The Group delivered a strong operational performance and increased copper equivalent production by 5%, despite challenges arising from adverse weather conditions in Australia, and an extended longwall move at Grosvenor (Metallurgical Coal).

Group copper equivalent unit costs increased by 7%, principally driven by stronger producer currencies. When the impact of foreign exchange movement is excluded, this increase was only 2%; below the Group's weighted average CPI for the year of 4%.

 

Attributable ROCE increased to 19% (2016: 11%), owing to the 73% improvement in attributable underlying EBIT to $5.1 billion.

 

Net debt (including related derivatives) reduced to $4.5 billion, $4.0 billion lower than at 31 December 2016. The reduction was driven by $4.9 billion of attributable free cash flow, reflecting the strong underlying EBITDA and working capital inflows, partly offset by the payment of dividends to Group shareholders.

 

Our materially improved balance sheet supported the resumption of the dividend at the half year. Based on a payout ratio dividend policy, 48 US cents per share was paid in September 2017. In line with this policy, the Board proposes a final dividend of 40% of second half underlying earnings equal to 54 US cents per share, bringing the total dividends paid and proposed for the year to $1.02 per share.

 

OPERATIONAL PERFORMANCE

 

We have continued to lift the performance of our assets through the implementation of our Operating Model. Across the Group, production increased by 5% on a copper equivalent basis, driven by improved performances at De Beers (+22%), Kumba Iron Ore (+8%) and Iron Ore Brazil (+4%), partly offset by lower production at the Coal operations (-4%)⁽¹⁾.

 

At De Beers, rough diamond production increased by 22% to 33.5 million carats (2016: 27.3 million carats), reflecting stronger trading conditions and the contribution from the Gahcho Kué mine in Canada, which entered commercial production in March 2017.

 

Kumba delivered a strong operational performance, increasing iron ore production by 8% to 45.0 Mt (2016: 41.5 Mt), following improvements in mining productivity resulting from fleet efficiencies and higher plant yields. In Brazil, our Minas-Rio iron ore operation produced 16.8 Mt (wet basis), 4% higher (2016: 16.1 Mt), as the operation continued to ramp up its current operating capacity.

 

Copper production was in line with the prior year at 579,300 tonnes (2016: 577,100 tonnes), with solid performances at Los Bronces and Collahuasi partly offset by the impact of lost production at El Soldado, owing to the temporary suspension of mining operations in the first half.

 

Our Metallurgical Coal business in Australia produced 19.7 Mt of metallurgical coal, 6% lower than the prior year (2016: 20.9 Mt). This was driven by the divestment of Foxleigh mine (PCI producer), although was largely offset by a strong performance at the underground longwall operations, which produced 12.3 Mt, 14% higher than the prior year (2016: 10.8 Mt). Coal South Africa's export thermal coal production declined by 3% to 18.6 Mt (2016: 19.1 Mt), mainly owing to operational challenges at Khwezela mine, and the planned transition to a new pit at Mafube. The Coal South Africa operations were also affected by self-enforced safety stoppages, following three fatalities in the year.

 

Group copper equivalent unit costs increased by 7%, driven mainly by stronger producer currencies. Excluding the impact of foreign exchange, the cost increase was 2%. Lower unit costs were realised at Platinum in rand terms, as a result of ongoing cost-saving initiatives, and at De Beers, where higher production and efficiency drives helped reduce unit costs. These efficiencies were offset, however, by higher costs across the Coal business which, in addition to experiencing Khwezela's operational challenges, encountered lower volumes at Dawson and the effects of the extended longwall move at Grosvenor (both Metallurgical Coal).

 

FINANCIAL PERFORMANCE

 

UNDERLYING EBITDA*

Group underlying EBITDA increased by 45% to $8.8 billion (2016: $6.1 billion), with a five percentage point increase in EBITDA margin from 26% to 31%, driven by strong pricing, particularly in bulk commodities and copper, continued productivity improvements and cost control across the portfolio.

 

Underlying EBITDA* by segment

 

$ million	Year ended 31 December 2017	Year ended 31 December 2016
De Beers	1,435	1,406
Copper	1,508	903
Platinum	866	532
Iron Ore and Manganese	2,357	1,536
Coal	2,868	1,646
Nickel	81	57
Corporate and other	(292)	(5)
Total	8,823	6,075

 

(1)    Metallurgical and export thermal coal production. 

Underlying EBITDA* reconciliation 2016 to 2017

 

The reconciliation of underlying EBITDA from $6.1 billion in 2016 to $8.8 billion in 2017 allows an understanding of the controllable factors (e.g. cost and volume) and those largely outside of management control (e.g. price, foreign exchange and inflation) that drive the Group's performance. 

 

$ billion
2016 underlying EBITDA*		6.1
Price		2.4
Foreign exchange		(0.7)
Inflation		(0.4)
Volume	0.9
Cost	0.2
Net volume and cost improvements		1.1
Other		0.3
2017 underlying EBITDA*		8.8

 

Price

Average market prices for the Group's basket of commodities and products increased by 16%, contributing $2.4 billion of improvement to underlying EBITDA. The realised prices of metallurgical coal and copper increased by 57% and 29% respectively, while palladium (Platinum) showed a 44% improvement in realised price. The average realised price of diamonds decreased by 13%, mainly owing to a lower-value mix, with the average rough price index being 3% higher.

 

Foreign exchange

Stronger producer country currencies had the effect of reducing underlying EBITDA by $0.7 billion, mainly owing to a 9% strengthening of the South African rand and a 4% strengthening of the Chilean peso against the dollar.

 

Inflation

The Group's weighted average CPI for the year was 4%, in line with the prior year, principally influenced by South Africa, which had local CPI of 5%. The impact of inflationary cost increases reduced underlying EBITDA by $0.4 billion.

 

Volume

Following the cessation of capitalisation of earnings at Minas-Rio in January 2017, the operation's 16.8 Mt iron ore production materially benefited underlying EBITDA by $0.4 billion, which was also boosted by higher sales volumes at De Beers, reflecting stronger demand for lower-value goods in the first quarter of 2017. Kumba's increased fleet efficiency and higher plant yields, as well as Platinum's solid recovery from the operational challenges experienced in 2016, also contributed to the Group volume improvement.

 

Cost

The Group's cost improvements benefited underlying EBITDA by $0.2 billion, overcoming the effects of above‑CPI inflationary pressure on the mining industry. This performance reflected the numerous cost-saving initiatives being implemented across the Group.

 

Other

Improved profitability at the Group's joint ventures and associates, Samancor, Cerrejón and Jellinbah, added $0.5 billion to underlying EBITDA. This was driven by higher prices on a stable production base. The action taken in 2016 to streamline our portfolio, which included the disposal of our Niobium and Phosphates business and tactical divestments at Metallurgical Coal, had a negative underlying EBITDA impact of $0.2 billion.

 

UNDERLYING EARNINGS*

Group underlying earnings increased by 48% to $3.3 billion (2016: $2.2 billion), in excess of the 45% increase to underlying EBITDA.

 

Reconciliation to underlying earnings*

 

$ million	Year ended 31 December 2017	Year ended 31 December 2016
Underlying EBITDA*	8,823	6,075
Depreciation and amortisation	(2,576)	(2,309)
Net finance costs and income tax expense	(2,223)	(1,118)
Non-controlling interests	(752)	(438)
Underlying earnings*	3,272	2,210

 

Depreciation and amortisation

Depreciation and amortisation increased to $2.6 billion (2016: $2.3 billion), reflecting cessation of capitalisation at Grosvenor in August 2016, and at Minas-Rio and Gahcho Kué during the course of 2017, in addition to the effect of stronger local currencies.

 

Net finance costs

Net finance costs, before special items and remeasurements, excluding associates and joint ventures, were $0.5 billion (2016: $0.2 billion). The increase was principally driven by the cessation of capitalisation of borrowing costs associated with Minas-Rio and Grosvenor, leading to a reduction in interest costs capitalised to $35 million (2016: $0.4 billion), as well as the impact of increases in LIBOR. This was partly offset by lower interest expense resulting from reduced average borrowings during the year.

 

Income tax expense

The underlying effective tax rate was 29.7% for the year ended 31 December 2017 (2016: 24.6%). The effective tax rate in 2017 benefited from the reassessment of deferred tax balances, primarily in Australia and Brazil, partly offset by the reassessment of withholding tax provisions, primarily in relation to Chile and South Africa, and the impact of the relative levels of profits arising in the Group's operating jurisdictions. In future periods, it is expected that the underlying effective tax rate will remain above the United Kingdom statutory tax rate.

 

The tax charge for the year, before special items and remeasurements, was $1.3 billion
(2016: $0.7 billion).

 

Non-controlling interests

Non-controlling interests of $0.8 billion (2016: $0.4 billion) principally relate to minority shareholders in Kumba Iron Ore (Iron Ore and Manganese) and has increased as a result of higher profitability at Anglo American Sur (Copper).

 

SPECIAL ITEMS AND REMEASUREMENTS

Special items and remeasurements are a net charge of $0.1 billion (2016: net charge of $0.6 billion) and include net impairment reversals of $0.4 billion, relating to the impairment reversal at Sishen (Iron Ore and Manganese) of $0.5 billion, and El Soldado (Copper) of $0.2 billion, partly offset by impairments of the Group's interest in BRPM (Platinum) and at Coal South Africa.

 

Full details of the special items and remeasurements recorded in the year are included in note 9 to the Condensed financial statements.

 

CASH FLOW

Cash flows from operations

Cash flows from operations increased by $2.5 billion to $8.4 billion (2016: $5.8 billion), reflecting strong underlying EBITDA from subsidiaries and joint operations and working capital inflows.

 

Cash inflows on operating working capital were $0.9 billion (2016: inflows of $0.4 billion), driven mainly by an increase in operating payables across the Group and, in particular, by a $0.2 billion prepayment from a customer in our Platinum business.

 

Attributable free cash flow*

Attributable free cash flow increased to a $4.9 billion inflow (2016: $2.6 billion inflow). The improvement resulted from a $2.5 billion increase in cash flows from operations and a $0.2 billion reduction in capital expenditure, offset by a $0.6 billion increase in dividends paid to non-controlling interests.

 

NET DEBT*

$ million	2017	2016
Opening net debt*	(8,487)	(12,901)
Underlying EBITDA* from subsidiaries and joint operations	7,632	5,469
Working capital movements	879	391
Other cash flows from operations	(136)	(22)
Cash flows from operations	8,375	5,838
Capital expenditure*	(2,150)	(2,387)
Cash tax paid(1)	(843)	(465)
Dividends from associates, joint ventures and financial asset investments	517	172
Net interest(2)	(355)	(581)
Dividends paid to non-controlling interests	(601)	(15)
Attributable free cash flow*	4,943	2,562
Dividends to Anglo American plc shareholders	(618)	-
Other net debt movements	(339)	1,852
Total movement in net debt*(3)	3,986	4,414
Closing net debt*	(4,501)	(8,487)

 

⁽¹⁾  2016 excludes tax payments of $146 million relating to disposals, which are shown as part of net disposal proceeds.

⁽²⁾    Includes cash inflows of $22 million (2016: $89 million), relating to interest payments on derivatives hedging net debt, which are included in cash flows from derivatives related to financing activities.

⁽³⁾    Net debt excludes the own credit risk fair value adjustment on derivatives of $9 million (2016: $73 million).

 

Net debt (including related derivatives) of $4.5 billion was $4.0 billion lower than at 31 December 2016, representing gearing of 13% (2016: 26%). Net debt at 31 December 2017 comprised cash and cash equivalents of $7.8 billion (2016: $6.0 billion) and gross debt, including related derivatives, of $12.3 billion (2016: $14.5 billion). The reduction in net debt was driven by $4.9 billion of attributable free cash flow, partly offset by the payment of dividends to Group shareholders in September, as well as other net debt movements.

 

BALANCE SHEET

Net assets of the Group increased by $4.6 billion to $28.9 billion (2016: $24.3 billion). This reflected the reduction in net debt and net foreign exchange gains relating principally to operations with South African rand and Australian dollar functional currencies. Capital expenditure of $2.2 billion was more than offset by depreciation and amortisation of $2.6 billion.

 

ATTRIBUTABLE ROCE*

 

Attributable ROCE increased to 19% (2016: 11%), primarily owing to the 73% improvement in attributable underlying EBIT to $5.1 billion (2016: $3.0 billion), driven by higher prices, higher sales volumes at De Beers, the ongoing ramp-up of production at Minas-Rio in Brazil and the continued delivery of cost efficiency programmes across the Group. This improvement was mitigated by inflation and stronger producer country currencies. Average attributable capital employed was constant at $27.4 billion (2016: $27.4 billion), as capital expenditure and the strengthening of producer currencies were offset by the impact of disposals during 2016 on average capital employed, and a $0.9 billion reduction in working capital during the year.

 

LIQUIDITY AND FUNDING

In March 2017, the Group completed the repurchase of $1.3 billion (including the cost of unwinding associated derivatives) of euro- and sterling-denominated bonds with maturities from April 2018 to June 2019. This was followed in April 2017 with a $1.0 billion dual tranche 5- and 10-year issuance in the US bond markets.

 

In September 2017, the Group completed the repurchase of $1.9 billion (including the cost of unwinding associated derivatives) of US- and euro-denominated bonds with maturities from September 2018 to November 2020. Concurrently, the Group issued corporate bonds with a US dollar equivalent value of $2.0 billion, including a $1.3 billion dual tranche 7- and 10-year issuance in the US bond markets and a €0.6 billion 8-year bond in the European bond markets.

 

On 7 February 2018, Anglo American gave notice that it will redeem in full its outstanding $750 million, 9.375% US bond, due April 2019, on 9 March 2018.

 

These transactions, as well as $1.9 billion of bond maturities during 2017, have reduced short term refinancing requirements, increased the weighted average maturity of outstanding debt by approximately one year and reduced gross debt.

 

GROUP CAPITAL EXPENDITURE*

 

Capital expenditure decreased to $2.2 billion (2016: $2.4 billion), due to rigorous capital discipline applied to all project investments, coupled with the commissioning of the Minas-Rio, Gahcho Kué and Grosvenor projects - all previously projects in execution, for which capitalisation has ceased.

 

$ million	Year ended 31 December 2017	Year ended 31 December 2016
Expansionary	384	967
Stay-in-business	1,310	1,042
Development and stripping	586	551
Proceeds from disposal of property, plant and equipment	(52)	(23)
Total	2,228	2,537
Capitalised operating cash flows	(78)	(150)
Total capital expenditure	2,150	2,387

 

Stay-in-business capital expenditure increased to $1.3 billion (2016: $1.0 billion), primarily owing to the inclusion of expenditure at these newly commissioned assets and stronger producer currencies.

 

Capital expenditure on our expansionary projects during the year was focused on the ongoing development of De Beers' Venetia underground mine in South Africa. The project is now well under way, with the underground operation expected to be the mine's principal source of ore during 2023, extending the life of mine to 2046.

 

In 2018, we expect capital expenditure to increase to between $2.6 and $2.8 billion.

 

DIVIDENDS

Our materially improved balance sheet supported the decision to resume dividend payments at the half year, six months earlier than expected, and a dividend based on 40% of first half underlying earnings was paid in September 2017.

 

The payout ratio based dividend policy provides shareholders with exposure to improvements in product prices, while retaining cash flow flexibility during periods of weaker pricing. In line with the policy, the Board proposes a final dividend of 40% of second half underlying earnings, equal to 54 US cents per share, bringing the total dividends paid and proposed in the year to $1.02 per share.

 

PORTFOLIO UPGRADE

Disposals announced and completed

During 2017, we completed the disposal of our 83.3% interest in the Dartbrook coal mine (Metallurgical Coal) to Australian Pacific Coal Limited, our 42.5% interest in the Pandora mine (Platinum) and certain Amandelbult resources (Platinum). In February 2018, we completed the disposal of Platinum's 85% interest in Union Mine and 50.1% interest in Masa Chrome Company Proprietary Limited in South Africa to a subsidiary of Siyanda Resources Proprietary Limited.

 

Anglo American entered into several sale agreements, the completion of which are subject to, among other things, regulatory approvals, including our 88.2% interest in the Drayton thermal coal mine and Drayton South project in Australia to Malabar Coal Limited. The sale of the Eskom-tied domestic thermal coal operations in South Africa to a wholly owned subsidiary of Seriti Resources Holdings Proprietary Limited is expected to complete on 1 March 2018. In addition, in January 2018, we agreed the sale of the New Largo thermal coal project and Old New Largo closed colliery in South Africa to New Largo Coal Proprietary Limited, which is owned by Seriti Resources Holdings Proprietary Limited, Coalzar Proprietary Limited and the Industrial Development Corporation.

 

Other portfolio changes

 

Bokoni mine (Platinum) in South Africa was placed onto care and maintenance by Platinum's joint venture partner, Atlatsa Resources, during the year.

 

Damtshaa diamond mine in Botswana, which was placed onto care and maintenance from 1 January 2016, successfully achieved a restart in the fourth quarter of 2017, in preparation for 2018 production.

 

Having exceeded its original diamond production forecast over its expected lifespan, De Beers' Victor mine in Canada is due to close in 2019, when the open pit will have been depleted.

 

THE BOARD

With effect from the conclusion of the Annual General Meeting held on 24 April 2017, Nolitha Fakude joined the Board as a non-executive director and Stephen Pearce succeeded René Médori as finance director. Mr Médori left the Board with effect from that date. Ian Ashby was appointed to the Board as a non-executive director on 25 July 2017.

 

Mr Stuart Chambers joined the Board as a non-executive director and chairman designate on 1 September 2017. Sir John Parker retired from the Board on 31 October 2017 and was succeeded as chairman by Mr Chambers with effect from 1 November 2017.

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

Anglo American plc 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 2017 year-end are set out in detail in the strategic report section of the Annual Report 2017. The principal risks relate to the following:

 

·      Catastrophic risks

·      Political and regulatory

·      Competitive position

·      Investor activism

·      Future demand for diamonds

·      Future demand for PGMs

·      Cyber security

·      Safety

·      Commodity prices

·      Corruption

·      Operational performance including delivery of cash targets

 

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 2017 will be available on the Group's website from 5 March 2018.

 

www.angloamerican.com
 

Operations review for the year ended 31 December 2017

DE BEERS

 

Financial and operational metrics(1)
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	'000 carats	'000 carats(2)	$/ct(3)	$/ct(4)	$m(5)	$m		$m	$m(6)
De Beers	33,454	32,455	162	63	5,841	1,435	25%	873	273	9%
Prior year	27,339	29,965	187	67	6,068	1,406	23%	1,019	526	11%
Botswana (Debswana)	22,684	-	159	28	-	484	-	447	86	-
Prior year	20,501	-	152	26	-	571	-	543	90	-
Namibia (Namdeb Holdings)	1,805	-	539	257	-	176	-	146	33	-
Prior year	1,573	-	528	245	-	184	-	163	65	-
South Africa (DBCM)	5,208	-	129	62	-	267	-	119	114	-
Prior year	4,234	-	121	53	-	268	-	172	156	-
Canada(7)	3,757	-	235	57	-	205	-	58	(5)	-
Prior year	1,031	-	271	212	-	79	-	13	184	-
Trading	-	-	-	-	-	449	-	443	1	-
Prior year	-	-	-	-	-	378	-	371	3	-
Other(8)	-	-	-	-	-	(146)	-	(340)	44	-
Prior year	-	-	-	-	-	(74)	-	(243)	28	-

 

⁽¹⁾  Prepared on a consolidated accounting basis, except for production, which is stated on a 100% basis except for the Gahcho Kué joint venture in Canada, which is on an attributable 51% basis.

⁽²⁾  Consolidated sales volumes (2017: 33.1 million carats; 2016: 30.0 million carats) exclude pre-commercial production sales volumes from Gahcho Kué. Total sales volumes (100%), which are comparable to production, were 35.1 million carats (2016: 32.0 million carats). Total sales volumes (100%) include pre-commercial production sales volumes from Gahcho Kué and De Beers' JV partners' 50% proportionate share of sales to entities outside De Beers from the Diamond Trading Company Botswana and the Namibia Diamond Trading Company.

⁽³⁾  Pricing for the mining business units is based on 100% selling value post-aggregation of goods. The De Beers realised price includes the price impact of the sale of non-equity product and, as a result, is not directly comparable to De Beers unit costs, which relate to equity production only.

⁽⁴⁾  Unit cost is based on consolidated production and operating costs, excluding depreciation and operating special items, divided by carats recovered.

⁽⁵⁾  Includes rough diamond sales of $5.2 billion (2016: $5.6 billion).

⁽⁶⁾  Includes pre-commercial production capitalised operating cash inflows from Gahcho Kué.

⁽⁷⁾  For Canada, price excludes Gahcho Kué contribution from sales related to pre-commercial production, which were capitalised in the first half of 2017. Unit costs include Gahcho Kué contribution following achievement of commercial production on 2 March 2017.

⁽⁸⁾  Other includes Element Six, downstream, acquisition accounting adjustments, projects and corporate.

 

Financial and operational overview

Underlying EBITDA increased by 2% to $1,435 million (2016: $1,406 million) despite lower revenue following the one-off industry midstream restocking in 2016. This performance was driven by improved margins, which benefited from lower unit costs (supported by higher production and efficiency drives across the business), a strong contribution from Canada (driven by Gahcho Kué's ramp-up and the closure of Snap Lake), and Element Six (which benefited from a recovery in oil and gas markets). This was partly offset by unfavourable exchange rates, and an increasing proportion of waste mining costs being expensed rather than capitalised, owing to an improved strip ratio at Venetia in South Africa.

  

Total revenue declined by 4% to $5.8 billion (2016: $6.1 billion) - as expected, given the benefit of strong midstream restocking in the first half of 2016. The average realised rough diamond price decreased by 13% to $162/carat (2016: $187/carat) mainly owing to a lower value mix; this was partly offset by an 8% increase in consolidated sales volumes to 32.5 million carats (2016: 30.0 million carats). This reflected stronger demand for lower-value goods in Sight 1 of 2017, following a recovery from the initial impact of India's demonetisation programme in late 2016, as well as the ramp-up of production from lower value per carat but high margin operations, including Orapa and Gahcho Kué. The lower-value mix was compensated in part by a higher average rough price index, which was 3% above that of 2016.

 

Capital expenditure reduced by 48% to $273 million (2016: $526 million), mainly owing to the completion of major projects, including Gahcho Kué; Debmarine Namibia's new exploration and sampling vessel, the SS Nujoma; and planned lower waste capitalisation at Venetia. The SS Nujoma, which was delivered three months ahead of schedule and under budget, was officially inaugurated in June 2017 and is fully operational.

 

Markets

Early signs are that global consumer demand for diamond jewellery registered positive growth in 2017 in US dollar terms, following a marginal increase in 2016. Sustained diamond jewellery demand growth in the US was once again the main contributor to this positive outcome. Demand for diamond jewellery by Chinese consumers grew marginally, in local currency and dollar terms. In contrast, consumer demand for diamonds softened in India and the Gulf states, both in local currency and dollar terms, while Japan's consumer demand growth was flat in local currency and lower in dollars.

 

Diamond producers' primary stocks are estimated to have reduced considerably during the first half of 2017, as sentiment in the midstream improved and rough and polished inventories normalised for businesses in this segment of the value chain. However, as a result of US retailers tightly managing their inventories and the earlier timing of Diwali in India, there was a slight seasonal build-up of polished inventory in the midstream going into the fourth quarter. Overall, early indications are that additional consumer marketing undertaken during the main selling season had a positive effect on polished demand in the US, China and India in the final quarter of the year, leading to a positive impact on overall polished inventories.

 

Operating performance

Mining and manufacturing

Rough diamond production increased by 22% to 33.5 million carats (2016: 27.3 million carats), reflecting stronger underlying trading conditions as well as the contribution from the ramp-up of Gahcho Kué.

 

Botswana (Debswana) increased production by 11% to 22.7 million carats (2016: 20.5 million carats). Production at Orapa was 28% higher, mainly driven by planned increases in plant performance and the ramp‑up of Plant 1, which was previously on partial care and maintenance in response to trading conditions in late 2015. In June 2017, Jwaneng processed its first ore from Cut-8, which is expected to become the mine's main source of ore during 2018.

 

In Namibia (Namdeb Holdings), production increased by 15% to 1.8 million carats (2016: 1.6 million carats), primarily owing to higher production from Debmarine Namibia's Mafuta vessel, driven by higher mining rates following an extended scheduled in-port during 2016. At Namdeb's land operations, production rose by 6%, despite challenging conditions, including grade variability owing to the nature of alluvial deposits, structural cost pressures, and some operations nearing the end of their lives.

 

In South Africa (DBCM), production increased by 23% to 5.2 million carats (2016: 4.2 million carats), primarily owing to Venetia, driven by higher grades as well as improved operational performance benefiting tonnes treated. Construction continues on the Venetia Underground mine, which is expected to become the mine's principal source of production during 2023.

 

 

In Canada, production increased to 3.8 million carats (2016: 1.0 million carats) owing to the ramp-up of Gahcho Kué, which entered commercial production in March 2017. During the year, Gahcho Kué benefited from higher than expected grades, partly offset by a lower average value of production. Owing to the differences in lobe characteristics across different kimberlite pipes, the average grade and realised price will continue to vary and will be dependent on the area mined. Production at Victor increased by 21% to 0.7 million carats as a result of higher grades. Victor, which has been operating successfully since 2008, is due to close in 2019, when the open pit is expected to have been depleted. The closure of Snap Lake, which is currently on care and maintenance, is progressing, with flooding having been completed, thereby minimising holding costs while preserving the long term viability of the orebody.

 

Other revenue includes Element Six, which grew strongly, driven primarily by a recovery in the oil and gas business but also supported by the automotive and consumer electronics segments.

 

Brands 

In March 2017, De Beers acquired its joint venture partner's 50% shareholding in De Beers Jewellers (DBJ). With full ownership of the business (and the De Beers corporate brand), the process of integrating the DBJ brand and network of 30 stores in 16 key consumer markets around the world is well under way.

 

Forevermark™ continued to expand its retailer network and is now available in more than 2,200 outlets in 25 markets, an increase of 10% since the end of 2016. By May 2017, Forevermark™ had inscribed its
two-millionth diamond, the second million having taken only half the time it took to inscribe the first million. For the peak holiday sales period, the brand launched "Forevermark Tribute™ Collection", a significant marketing investment across multiple channels in the key US market. The Tribute™ Collection, and its supporting campaign, symbolises and celebrates the many facets of the wearer, and reflects the growing trend for women to self-purchase.

 

In February 2017, De Beers unveiled its next-generation automated melée screening instrument (AMS2™), which is significantly less expensive, screens 10 times faster, can handle stones three times smaller, and has lower referral rates than its predecessor. In addition, an industry-first synthetic-screening device for stones in set jewellery (SYNTHdetect™) was launched in June 2017, along with the roll-out by the International Institute of Diamond Grading & Research of a synthetics-detection training course.

 

During 2017, De Beers invested more than $140 million in marketing (19% more than in 2016) through a combination of proprietary and partnership activity centred on the US, China and India. De Beers also substantially increased its investment in the Diamond Producers Association, a producer-wide body that works to enhance consumer demand by promoting the appeal, integrity and reputation of diamonds.

 

De Beers also began the development of a new digital platform for the diamond industry, backed by highly secure blockchain technology, which will provide a single immutable record for every diamond that is registered. Currently in the pilot phase, this initiative is being designed to underpin confidence in diamonds and the diamond industry for all stakeholders, while streamlining existing manual processes and creating new efficiencies in the value chain.

 

Outlook

Improving global macro-economic conditions remain supportive of consumer demand growth for polished diamonds in 2018. The degree of global economic growth, however, will be dependent upon a number of factors, including the extent of the positive impact on growth in consumer spending from US tax cuts, the strength of the dollar on consumer demand in non-dollar-denominated countries, and how successfully China manages its adjustment to a more domestic consumer-driven economy.

 

For 2018, forecast diamond production (on a 100% basis except Gahcho Kué on an attributable 51% basis) is expected to be in the range of 34-36 million carats, subject to trading conditions.

 

 

COPPER

Financial and operational metrics
	Production volume	Sales volume	Price	C1 unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin(3)	Underlying EBIT*	Capex*	ROCE*
	kt	kt(1)	c/lb	c/lb(2)	$m	$m		$m	$m
Copper	579	580	290	147	4,233	1,508	41%	923	665	16%
Prior year	577	578	225	137	3,066	903	31%	261	563	6%
Los Bronces	308	307	-	169	1,839	737	40%	401	245	-
Prior year	307	308	-	156	1,386	326	24%	(49)	241	-
Collahuasi(4)	231	232	-	113	1,314	806	61%	594	243	-
Prior year	223	223	-	111	1,068	569	53%	342	144	-
Other operations	40	41	-	-	1,080	76	16%	39	177	-
Prior year	47	47	-	-	612	83	18%	43	178	-
Projects and corporate	-	-	-	-	-	(111)	-	(111)	-	-
Prior year	-	-	-	-	-	(75)	-	(75)	-	-

 

⁽¹⁾  Excludes 111 kt third-party sales.

⁽²⁾  C1 unit cost includes by-product credits.

⁽³⁾ Excludes impact of third-party sales.

⁽⁴⁾  44% share of Collahuasi production, sales and financials.

 

Financial and operating overview

Underlying EBITDA increased by 67% to $1,508 million (2016: $903 million), primarily as a result of a 27% increase in the average LME copper price, as well as a continued focus on cost-reduction initiatives. Production increased to 579,300 tonnes, with solid performances at Los Bronces and Collahuasi partly offset by the impact of lost production at El Soldado, owing to the temporary suspension of mining operations in the first half. At 31 December 2017, 108,000 tonnes of copper were provisionally priced at 328 c/lb.

 

Markets

	2017	2016
Average market price (c/lb)	280	221
Average realised price (c/lb)	290	225

 

 

The differences between market price and realised price are largely a function of the timing of sales across the year and provisional pricing adjustments.

 

The increase in price in 2017 reflects improved demand and a slowdown in mine supply, stimulating more favourable investor sentiment.

 

Operating performance

At Los Bronces, production in 2017 increased marginally to 308,300 tonnes (2016: 307,200 tonnes). Higher grades (2017: 0.71% vs 2016: 0.67%) were partly offset by lower throughput, following a failure in the ball mill stator at the processing plant during the third and fourth quarters. C1 unit costs increased by 8% to 169 c/lb (2016: 156 c/lb), reflecting the effect of the stronger Chilean peso and cost inflation.

 

At Collahuasi, Anglo American's attributable share of copper production was 230,500 tonnes, an increase of 3% (2016: 222,900 tonnes). It was another year of record copper in concentrate production for the operation, building on 2016's record output. Production benefited from higher grades, as well as strong sustained plant performance following the completion of a two-month planned maintenance at the processing plant in the second quarter. C1 unit costs were 113 c/lb (2016: 111c/lb), with the increase in production and continued cost-saving initiatives partly offsetting the effects of the stronger Chilean peso, cost inflation and lower by‑product credits.

 

Production at El Soldado decreased by 14% to 40,500 tonnes (2016: 47,000 tonnes), owing largely to the temporary suspension of mine operations from 18 February to 28 April 2017, which resulted in 6,000 tonnes of lost production. C1 unit costs increased by 27% to 233 c/lb (2016: 184 c/lb) as a result of the lower output, the stronger Chilean peso and cost inflation.

 

Operational outlook

Production in 2018 is expected to increase with the planned mining of higher ore grades at Collahuasi and Los Bronces. Production guidance for 2018 has been tightened to 630,000-660,000 tonnes.

 

 

PLATINUM

Financial and operational metrics
	Production volume platinum	Production volume palladium	Sales volume platinum	Basket price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	koz(1)	koz(1)	koz	$/Pt oz(2)	$/Pt oz(3)	$m	$m		$m	$m
Platinum	2,397	1,557	2,505	1,966	1,443	5,078	866	17%	512	355	10%
Prior year	2,382	1,539	2,416	1,753	1,330	4,394	532	12%	185	314	4%
Mogalakwena	464	509	467	2,590	1,179	1,211	578	48%	448	151	-
Prior year	412	452	415	2,345	1,257	968	393	41%	269	157	-
Amandelbult(4)	438	202	459	1,868	1,596	858	88	10%	34	34	-
Prior year	459	207	466	1,567	1,254	727	97	13%	41	25	-
Purchase of concentrate(5)	1,021	549	1,082	-	-	1,884	173	9%	145	-	-
Prior year	652	388	656	-	-	1,033	96	9%	77	-	-
Other operations	474	297	497	-	-	1,125	83	7%	(59)	170	-
Prior year	859	492	879	-	-	1,666	(14)	(1)%	(162)	129	-
Projects and corporate	-	-	-	-	-	-	(56)	-	(56)	-	-
Prior year	-	-	-	-	-	-	(40)	-	(40)	3	-

 

⁽¹⁾    Production disclosure reflects own-mined production and purchase of metal in concentrate.

⁽²⁾    Average US$ basket price.

⁽³⁾  Total cash operating costs - includes on-mine, smelting and refining costs only.

⁽⁴⁾  Excludes 8 koz (2016: 8 koz) of platinum production now included in purchase of concentrate.

⁽⁵⁾    Purchase of concentrate from joint ventures, associates and third parties for processing into refined metal.

 

Financial and operating overview

Underlying EBITDA increased by 63% to $866 million (2016: $532 million), largely as a result of higher sales volumes (platinum, palladium and some minor metals) and stronger prices for palladium and rhodium. Lower local currency costs, driven by ongoing cost improvement initiatives, were offset by the stronger South African rand, resulting in an 8% increase in US dollar costs to $1,443/ounce (2016: $1,330/ounce).

 

Markets

	2017	2016
Average platinum market price ($/oz)	950	989
Average palladium market price ($/oz)	871	615
Average rhodium market price ($/oz)	1,097	681
Average gold market price ($/oz)	1,258	1,248
US$ realised basket price ($/Pt oz)	1,966	1,753
Rand realised basket price (R/Pt oz)	26,213	25,649

 

 

An increase in palladium and rhodium prices, driven by strong demand, supported a stronger basket price in both dollars and rand, despite a lower average platinum price during the year.

 

Operating performance

Total platinum production (metal in concentrate), including both own-mined production and purchase of concentrate, increased by 1% to 2,397,400 ounces (2016: 2,381,900 ounces). Total palladium production (metal in concentrate), including both own-mined production and purchase of concentrate, was also 1% higher at 1,557,300 ounces (2016: 1,538,700 ounces).
 

Production from own-managed mines

Platinum produced from own-managed mines, excluding projects, increased by 3% to 1,130,900 ounces (2016: 1,096,200 ounces), while palladium production grew by 7% to 847,200 ounces (2016: 789,600 ounces).

 

Platinum's flagship Mogalakwena mine produced a record 463,800 ounces of platinum (2016: 411,900 ounces) and 508,900 ounces of palladium (2016: 452,000 ounces), a 13% increase for both. The increase resulted from improved concentrator throughput and recoveries following implementation of the North concentrator plant optimisation project, as well as higher average grades.

 

Amandelbult complex yielded 438,000 ounces of platinum (2016: 458,600 ounces) and 202,500 ounces of palladium (2016: 207,300 ounces), representing decreases of 4% and 2% respectively. This was caused primarily by excessive rainfall in the first quarter, which constrained production from the surface operations, lower immediately available Ore Reserves, and increased development as the mine makes its transition from the Tumela Upper to the Dishaba Lower mining areas. Production was further affected by three fatal incidents and their subsequent associated safety stoppages.

 

Unki mine in Zimbabwe maintained its platinum production level for the year at 74,600 ounces
(2016: 74,500 ounces), while raising its palladium output by 5% to 64,400 ounces (2016: 61,400 ounces). This performance was largely driven by more efficient mining, which reduced waste mining, resulting in higher‑grade ore being delivered to the concentrator. Owing to planned maintenance at the concentrator in the fourth quarter, Unki had an ore stockpile at the end of 2017, which will be processed in 2018.

 

Union mine produced 154,500 ounces of platinum (2016: 151,200 ounces) and 71,400 ounces of palladium (2016: 68,900 ounces), increases of 2% and 4% respectively, as a result of improved stoping efficiencies. As announced by Platinum on 26 January 2018, Union mine has now been sold to Siyanda Resources Proprietary Limited, effective 1 February 2018. With effect from this date, Union mine's output is being recognised as third‑party purchase of concentrate.

 

Joint venture production

Platinum and palladium production from the Mototolo, Modikwa and Kroondal joint ventures, inclusive of both own-mined share and purchase of concentrate production, decreased by 3% and 1% respectively, to 490,600 ounces of platinum (2016: 505,600 ounces) and 323,100 ounces of palladium (2016: 327,800 ounces). The decrease was largely due to the stoppage of the Mototolo concentrator for remedial work to stabilise the tailings storage facility. This resulted in a 27% reduction in platinum output to 85,300 ounces (2016: 116,700 ounces) and a 26% reduction in palladium output to 52,500 ounces (2016: 70,700 ounces).

 

Modikwa platinum production rose by 10% to 126,700 ounces (2016: 114,800 ounces), and palladium production by 9% to 122,700 ounces (2016: 112,200 ounces) on the back of increased underground mining efficiencies and improved concentrator recoveries. Kroondal's production was slightly higher owing to increased underground productivity, with platinum and palladium production both 2% higher at 278,600 ounces (2016: 274,100 ounces) and 147,900 ounces (2016: 144,900 ounces) respectively.

 

Purchase of concentrate from associates

Total platinum production from associates decreased by 5% to 265,500 ounces (2016: 279,300 ounces), while palladium production was 10% lower at 127,900 ounces (2016: 141,700 ounces).

 

BRPM produced 211,900 ounces of platinum (2016: 195,900 ounces) and 87,600 ounces of palladium (2016: 81,300 ounces), both increasing by 8%, as the Styldrift project continued its ramp-up.

 

On 31 October 2017, Bokoni mine was placed onto care and maintenance by Platinum's joint venture partner, Atlatsa Resources, resulting in a 36% reduction in platinum output to 53,600 ounces (2016: 83,400 ounces) and a 33% decrease in palladium output to 40,300 ounces (2016: 60,400 ounces). No further loss-making production will be produced from Bokoni while the mine and concentrator remain on care and maintenance.

 

 

Purchase of concentrate from third parties

Increased third-party purchases of concentrate led to a yearly total of 510,400 ounces of platinum
(2016: 119,800 ounces) and 259,200 ounces of palladium (2016: 82,600 ounces). Production from Rustenburg has been purchased since 1 November 2016, when the operation was sold to Sibanye. The Maseve operation, owned by Platinum Group Metals, was placed onto care and maintenance in the third quarter. No further third‑party purchase of concentrate is currently expected from the Maseve mine.

 

Refined production

Refined platinum production increased by 8% to 2,511,900 ounces (2016: 2,334,700 ounces), and refined palladium production by 14% to 1,668,500 ounces (2016: 1,464,200 ounces). Refined production in 2016 was materially affected by a Section 54 safety stoppage at the Precious Metals Refinery, as well as by a run-out at the Waterval smelter in September of that year; the subsequent recovery from these developments was largely responsible for the increase in output in 2017.

 

The planned rebuild of the Waterval No. 2 furnace in the first quarter of 2017, and a high-pressure water leak at the converter plant in June 2017, delayed refining the backlog of material from 2016 to the second half of the year, with the full additional 100,000 ounces refined by year end.

 

Platinum sales volumes increased by 4% to 2,504,600 ounces (2016: 2,415,700 ounces), while palladium sales volumes rose by 3% to 1,571,700 ounces (2016: 1,532,100 ounces), in line with higher refined production.

 

Operational outlook

Platinum production (metal in concentrate) for 2018 is expected to be 2.3-2.4 million ounces.

 

Palladium production (metal in concentrate) for 2018 is expected to be 1.5-1.6 million ounces.

 

 

 

IRON ORE AND MANGANESE

Financial and operational metrics
	Production volume	Sales volume	Price	Unit  cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	Mt(1)	Mt	$/t(2)	$/t(3)	$m	$m		$m	$m
Iron Ore and Manganese	-	-	-	-	5,831	2,357	40%	1,978	252	21%
Prior year	-	-	-	-	3,426	1,536	45%	1,275	269	12%
Kumba Iron Ore	45.0	44.9	71	31	3,486	1,474	42%	1,246	229	47%
Prior year	41.5	42.5	64	27	2,801	1,347	48%	1,135	160	51%
Iron Ore Brazil	16.8	16.5	65	30	1,405	435	31%	335	23(5)	6%
Prior year	16.1	16.2	54	28	-	(6)	-	(6)	109	(1)%
Samancor(4)	3.6	3.6	-	-	940	529	56%	478	-	115%
Prior year	3.3	3.4	-	-	625	258	41%	209	-	59%
Projects and corporate	-	-	-	-	-	(81)	-	(81)	-	-
Prior year	-	-	-	-	-	(63)	-	(63)	-	-

 

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

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

⁽³⁾    Unit costs for Kumba Iron Ore are on an FOB dry basis. Unit costs for Iron Ore Brazil are on an FOB wet basis.

⁽⁴⁾    Production, sales and financials include ore and alloy.

⁽⁵⁾    $80 million of capital expenditure offset by capitalised cash inflows of $31 million relating to working capital in place at 31 December 2016, in addition to a $25 million inflow relating to capex hedges.

 

Financial and operating overview

Kumba

Underlying EBITDA of $1,474 million was 9% higher (2016: $1,347 million), with a 6% improvement in total sales volumes and an 11% increase in the realised price being offset by a 15% increase in FOB unit costs. The increase in unit costs was largely driven by the impact of the stronger South African rand (rand FOB unit costs increased by 2%) and cost inflation, including higher rail costs. This was partly offset, however, by productivity gains in mining and processing that led to an 8% rise in production, and through a higher premium achieved for lump product.

 

In line with higher production volumes, export sales volumes increased by 7% to 41.6 Mt (2016: 39.1 Mt). Total finished product stock also increased to 4.3 Mt (2016: 3.5 Mt), reflecting the increase in output.

 

Iron Ore Brazil

Underlying EBITDA amounted to $435 million (2016: $6 million loss), reflecting the operation's continued ramp‑up to its current operating capacity and the cessation of capitalisation of operating results since January 2017. The average FOB realised price of $65/wet metric tonne (equivalent to $71/dry metric tonne) was $11/tonne, or 20%, higher than that achieved in 2016. FOB unit costs increased by 7% to $30/wet metric tonne (2016: $28/wet metric tonne) as higher production volumes and the implementation of cost reduction initiatives only partly offset the strengthening of the Brazilian real.

 

  

 

Samancor

Underlying EBITDA increased by $271 million to $529 million (2016: $258 million), driven mainly by significantly higher realised manganese ore and alloy prices and a 7% increase in ore sales.

 

Markets

Iron ore

	2017	2016
Average market price (IODEX 62% Fe CFR China - $/tonne)	71	58
Average market price (MB 66% Fe Concentrate CFR - $/tonne)	87	69
Average realised price (Kumba export - $/tonne) (FOB Saldanha)	71	64
Average realised price (Minas-Rio - $/tonne) (FOB wet basis)	65	54

 

 

Kumba's outperformance over the IODEX (Platts) 62% Fe CFR China index is primarily representative of the higher iron (Fe) content and the relatively high proportion (approximately 66%) of lump in the overall product portfolio.

 

Minas-Rio produces higher grade products than the reference product used for the IODEX 62% Fe index. The pricing of Minas-Rio's products reflects the higher Fe content and lower gangue of those products compared with the IODEX 62% reference. IODEX 62% is referred to for comparison purposes only.

 

Manganese

During 2017, the average benchmark manganese ore price (benchmark CRU 44% CIF China) increased by 36% to $5.97/dmtu (2016: $4.38/dmtu), largely attributable to higher Chinese steel production and limited ore supply in the market, resulting from production cuts made in late 2015 and early 2016.

 

Operating performance

Kumba

Sishen's production increased by 10% to 31.1 Mt (2016: 28.4 Mt) following improvements in mining productivity resulting from fleet efficiencies and higher plant yields, brought about from the implementation of the Operating Model. Consequently, the amount of waste mined rose, as planned, to 162 Mt (2016: 137 Mt), an 18% increase. Additional operator training, changed shift patterns, together with higher workforce attendance rates, yielded positive results in the form of increased direct operating hours, enabling the mine to reduce its reliance on contractors.

 

Kolomela's production increased by 9% to 13.9 Mt (2016: 12.7 Mt), also reflecting productivity improvements following the roll-out of the Operating Model. Waste mining volumes grew by 11% to 55.6 Mt (2016: 50.2 Mt), supporting higher production levels. The Kolomela modular plant delivered 0.5 Mt, although performance was affected by delays in the ramp-up of the crushing plant.

 

Iron Ore Brazil

Minas-Rio's production of 16.8 Mt (wet basis) was 4% higher (2016: 16.1 Mt) as the operation continued to ramp up its current operating capacity. The ramp-up schedule was affected as mining operations were restricted to the remaining Ore Reserves in the Step 2 licence area, which included lower grade ore.

 

Samancor

Manganese ore output increased by 11% to 3.5 Mt (attributable basis) (2016: 3.1 Mt). Production from the Australian operations was 7% higher owing to increased concentrator throughput and higher yields as a result of favourable weather and the availability of suitable feed types. The South African operations increased production by 18%, taking advantage of stronger demand and pricing and the sale of lower quality fines product.

 

Production of manganese alloys increased by 8% to 149,200 tonnes (attributable basis)
(2016: 137,800 tonnes), mainly as a result of improved power availability at the Australian operations. In South Africa, manganese alloy production continued to utilise only one of the operation's four furnaces.

 

Operational outlook

Kumba

Kumba's full year production guidance for 2018 has been increased to 44-45 Mt following the recent strong performance at both Sishen and Kolomela.

 

Sishen is expected to produce 30-31 Mt of product and mine 170-180 Mt of waste.

 

Kolomela is expected to produce around 14 Mt, while waste removal, in support of the increased annual output, is expected to be around 55-57 Mt.

 

Iron Ore Brazil

Minas-Rio continues to focus on obtaining the Step 3 operating licence required for the operation to access the full range of run-of-mine ore grades and target the operation's nameplate capacity of 26.5 Mt (wet basis). The Step 3 installation licence was granted in January 2018, following delays during 2017, which will allow the Step 3 construction work to proceed. As a consequence of receiving the installation licence, the Provisional Operational Authorisation ('APO') is expected before November 2018 and the full Step 3 operational licence by mid-2019.

 

Production guidance for 2018 has been lowered to 13-15 Mt (previously 15-18 Mt) as a result of the lower ore grades at the remaining Step 2 area and the delays to the Step 3 operational licence process.

 

In 2018, unit costs are expected to increase as a result of lower production volumes, and to be in the region of $35/wet metric tonne.

 

Samancor

Australian manganese ore production guidance of 2.1 Mwmt (100% basis) for 2018 remains unchanged. South African manganese ore production guidance has increased by 8% to 3.4 Mwmt (100% basis), subject to continued strong market demand.

 

Legal

Sishen consolidated mining right granted

Sishen's application to extend the mining right by the inclusion of the adjacent Prospecting Rights was granted on 6 July 2017, and the process to amend the Sishen mining right continues. Mining operations in this area will only commence once the required environmental authorisation has been approved, which is expected soon. The grant allows Sishen mine to expand its current mining operations within the adjacent Dingleton area.

 

 

COAL

Financial and operational metrics
	Production volume	Sales volume	Price	Unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin(5)	Underlying EBIT*	Capex*	ROCE*
	Mt(1)	Mt(2)	$/t(3)	$/t(4)	$m	$m		$m	$m
Coal	48.9	49.0	-	-	7,211	2,868	46%	2,274	568	67%
Prior year	50.7	50.6	-	-	5,263	1,646	36%	1,112	613	29%
Metallurgical Coal	19.7	19.8	185	61	3,675	1,977	54%	1,594	416	86%
Prior year	20.9	20.7	112	51	2,547	996	39%	661	523	30%
Coal South Africa	18.6	18.6	76	44	2,746	588	32%	466	152	54%
Prior year	19.1	19.1	60	34	2,109	473	33%	366	90	41%
Cerrejón	10.6	10.6	75	31	790	385	49%	296	-	35%
Prior year	10.7	10.8	56	28	607	235	39%	143	-	17%
Projects and corporate	-	-	-	-	-	(82)	-	(82)	-	-
Prior year	-	-	-	-	-	(58)	-	(58)	-	-

 

⁽¹⁾    Production volumes are saleable tonnes. South African production volume is export production only and excludes Eskom-tied operations volumes of 23.9 Mt (2016: 24.8 Mt) and other domestic production of 7.5 Mt (2016: 9.9 Mt). Metallurgical Coal production volumes excludes thermal coal production volumes of 1.6 Mt (2016: 9.5 Mt, including 5.6 Mt of domestic thermal coal).

⁽²⁾  South African sales volumes exclude all domestic sales of 32.0 Mt (2016: 34.5 Mt) and non-equity traded sales of 7.6 Mt (2016: 6.1 Mt). Metallurgical Coal sales volumes exclude thermal coal sales of 1.8 Mt (2016: 9.6 Mt, including 5.4 Mt of domestic thermal coal).

⁽³⁾    Metallurgical Coal is the weighted average hard coking coal and PCI sales price achieved. Coal South Africa is the weighted average export thermal coal price achieved.

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

⁽⁵⁾  Excludes impact of third-party sales and Eskom-tied operations.

 

Financial and operating overview

Metallurgical Coal

Underlying EBITDA doubled to $1,977 million (2016: $996 million), owing to a 65% increase in the metallurgical coal realised price and higher production at all three underground operations. This was partly offset by planned production cuts at Dawson and Capcoal open cut operations and the impact of divestments on output. Following the divestments of Foxleigh (a PCI producer) and Callide (a domestic and export thermal coal producer), and the cessation of mining activities at Drayton (an export thermal coal producer), the business now produces a greater proportion of higher-margin hard coking coal (80% of total production, compared with 53% in 2016).

 

Coal South Africa

Underlying EBITDA increased by 24% to $588 million (2016: $473 million), mainly attributable to a 27% increase in the export thermal coal price. US dollar unit costs for the export trade operations increased by 29% to $44/tonne (2016: $34/tonne), owing to the stronger South African rand ($4/tonne impact), lower production ($4/tonne impact), mainly at Khwezela, and cost-inflation pressures ($2/tonne).

 

The sale of the Eskom-tied domestic thermal coal operations consisting of New Vaal, New Denmark, and Kriel collieries, as well as four closed collieries (together, 'Eskom-tied operations') by Anglo Operations Proprietary Limited and Anglo American Inyosi Coal Proprietary Limited to a wholly owned subsidiary of Seriti Resources Holdings Proprietary Limited was announced on 10 April 2017 for a consideration payable, as at 1 January 2017, of R2.3 billion (approximately $164 million). The transaction is expected to complete on 1 March 2018.

 

The sale of the New Largo thermal coal project and Old New Largo closed colliery in South Africa (together, 'New Largo') by Anglo American Inyosi Coal Proprietary Limited to New Largo Coal Proprietary Limited for R850 million (approximately $71 million), was announced on 29 January 2018. The sale is subject to conditions precedent customary for a transaction of this nature, including regulatory approvals in South Africa. The transaction is expected to close in the second half of 2018.

 

The financial results reported for the period ended 31 December 2017 include the Eskom-tied domestic thermal coal operations and New Largo.

 

Cerrejón

Underlying EBITDA increased to $385 million (2016: $235 million), owing mainly to higher export thermal coal prices, partly offset by a 2% decrease in sales volumes.

 

Markets

Metallurgical coal

	2017	2016
Average market price for premium low-volatility hard coking coal ($/tonne)(1)	188	143
Average market price for premium low-volatility PCI ($/tonne)(1)	119	97
Average realised price for premium low-volatility hard coking coal ($/tonne)	187	119
Average realised price for PCI ($/tonne)	125	77

 

⁽¹⁾ Represents average spot prices. Prior year prices were previously based on the quarterly average benchmark and have been restated accordingly.

 

Average realised prices differ from the average market price owing to differences in material grade and timing of contracts.

 

Prices in 2017 were supported by higher steel prices and strong demand globally, as well as by supply constraints arising from wet weather in Queensland in the second quarter.

 

Thermal coal

	2017	2016
Average market price ($/tonne, FOB Australia)	89	66
Average market price ($/tonne, FOB South Africa)	84	64
Average market price ($/tonne, FOB Colombia)	78	58
Average realised price - Export Australia ($/tonne, FOB)	91	55
Average realised price - Export South Africa ($/tonne, FOB)	76	60
Average realised price - Domestic South Africa ($/tonne)	21	17
Average realised price - Colombia ($/tonne, FOB)	75	56

 

 

The average realised price for thermal coal will differ from the average market price owing to timing and quality differences relative to the industry benchmark. The difference in the realised price compared with the benchmark price, between 2016 and 2017, reflects changing quality mix owing to a higher proportion of secondary products being sold into the export market.

 

The thermal coal market saw the positive price effects of the Chinese domestic coal production rationalisation, which supported coal imports into China and lifted seaborne pricing. On the supply side, Australia was stable, while Indonesia was constrained owing to mining issues associated with ongoing wet weather. The Atlantic region saw coal prices supported by higher electricity prices, partly driven by nuclear outages in France.

 

Operating performance

Metallurgical Coal

Production from the underground longwall operations was 14% higher at 12.3 Mt (2016: 10.8 Mt), and included 0.3 Mt from the ramp-up of Grosvenor and record production of 5.4 Mt from Moranbah. Both Capcoal open cut and Dawson recorded lower production as the sites established alternative pit areas and removed higher-cost production.

 

Following a recovery from the geological issues experienced in the first six months, and a strong operational performance through the third quarter, Grosvenor completed its first longwall panel during the final quarter of 2017, and also completed an extended longwall move in order to rectify defective components identified during the first panel. Production on the second longwall panel commenced in December and is in line with the ramp‑up plan.

 

Coal South Africa

Export production decreased by 3% to 18.6 Mt (2016: 19.1 Mt), with continued productivity improvements at the underground operations more than offset by a self-enforced 100-hour safety stoppage at all operations following the third fatality of the year. In addition, at Khwezela there were operational challenges with the waste fleet and coal recovery operations. Total production from trade mines decreased by 11% to 22.0 Mt (2016: 24.6 Mt), mainly owing to the planned ramp-down of Khwezela's Eskom pit, which reached its end of life in the first half of 2017.

 

Production from Eskom-tied operations decreased by 4% to 23.9 Mt (2016: 24.8 Mt) due to lower Eskom offtake from New Vaal and reserve constraints at Kriel as it approaches the end of its mine life.

 

Cerrejón

Anglo American's attributable output from its 33.3% shareholding in Cerrejón was 10.6 Mt, in line with the prior year.

 

Operational outlook

Metallurgical Coal

Export metallurgical coal production guidance for 2018 is unchanged at 20-22 Mt.

 

Export thermal coal

Full year production guidance for 2018 for export thermal coal from South Africa and Cerrejón is unchanged at 29-31 Mt.

 

 

 

 

NICKEL

Financial and operational metrics
	Production volume	Sales volume	Price	C1 unit cost*	Revenue*	Underlying EBITDA*	Underlying EBITDA margin	Underlying EBIT*	Capex*	ROCE*
	t	t	c/lb	c/lb	$m	$m(1)		$m(1)	$m
Nickel	43,800	43,000	476	365	451	81	18%	0	28	0%
Prior year	44,500	44,900	431	350	426	57	13%	(15)	62	(1)%

 

⁽¹⁾  Nickel segment includes $3 million projects and corporate costs (2016: $10 million).

 

Financial and operating overview

Underlying EBITDA increased by 42% to $81 million (2016: $57 million), reflecting a higher nickel price, partly offset by the unfavourable impact of the stronger Brazilian real and cost inflation.

 

Nickel unit costs increased by 4% to 365 c/lb (2016: 350 c/lb) as adverse exchange rates and inflation were only partly compensated by other cost-saving efforts, including lower energy costs.

 

Markets

 

	2017	2016
Average market price (c/lb)	472	436
Average realised price (c/lb)	476	431

 

The average market price is the LME nickel price, from which ferronickel pricing is derived. Ferronickel is traded based on discounts or premiums to the LME price, depending on market conditions, supplier products and consumer preferences.

 

Differences between market prices and realised prices are largely due to variances between the LME and the ferronickel price.

 

Operating performance

Nickel output decreased by 2% to 43,800 tonnes (2016: 44,500 tonnes) as instabilities at both smelting operations negatively affected Barro Alto's production performance in February 2017. The root causes were addressed and the operations returned to stable performance from the second quarter. Codemin's production of metal was in line with the prior year at 9,000 tonnes.

 

Operational outlook

Production guidance for 2018 has been lowered to 42,000-44,000 tonnes, as a result of planned maintenance at Barro Alto's plant.

 

CORPORATE AND OTHER

Financial metrics
	Revenue*	Underlying EBITDA*	Underlying EBIT*	Capex*
	$m	$m	$m	$m
Segment	5	(292)	(313)	9
Prior year	499	(5)	(71)	40
Niobium and Phosphates	-	-	-	-
Prior year	495	118	79	26
Exploration	-	(103)	(103)	-
Prior year	-	(107)	(107)	-
Corporate activities and unallocated costs	5	(189)	(210)	9
Prior year	4	(16)	(43)	14

 

Financial and operating overview

Corporate and other reported an underlying EBITDA loss of $292 million (2016: $5 million loss).

 

Niobium and Phosphates

The sale of the Niobium and Phosphates business to China Molybdenum Co Ltd. was completed on 30 September 2016.

 

Exploration

Exploration expenditure decreased to $103 million (2016: $107 million), reflecting a general reduction across most of the commodities, driven primarily by lower drilling activities.

 

Corporate activities and unallocated costs

Underlying EBITDA amounted to a $189 million loss (2016: $16 million loss), driven primarily by a year‑on‑year loss recognised in the Group's self-insurance entity, reflecting lower premium income and higher net claims and settlements during 2017.