Deleveraging target exceeded, thereby helping reinstate dividends

Anglo American posted strong H1 17 results, resulting in dividends being reinstated. Higher prices (average +30% yoy) across commodities — (met) coal, iron ore, copper and PGMs (due to palladium) — and healthy volumes (in De Beers and Minas-Rio) resulted in the top-line increasing by 22% yoy (and 5.9% hoh) to $12bn. Profit improvements were stellar, with adjusted EBIT soaring 87% yoy (and 22% hoh) to $2.5bn. In addition to the top-line support, profitability also benefited from cost improvements that were partly offset by adverse forex movements and inflation. H1 net attributable profit came in at $1.4bn vs. a loss of $813m (including sizeable impairments) in H1 16 and a profit of $2.4bn (including sizeable asset disposal gains) in H2 16. Even reported OCFs improved by 45% yoy (and 31% hoh) to $3.7bn, aptly supported by a working capital release of $231m (vs. release of $498m in H1 16 and use of $107m in H2 16). Strong cashflows along with controlled capex of $800m (-27% yoy; -39% hoh) further facilitated significant deleveraging, with net debt falling (-22% vs. 2016 end) to $5.5bn. Given that Anglo overshot its deleveraging target for 2017 during the first half, management decided to resume dividends – a good six months before the earlier guidance. As a result, an interim dividend of USc48 per share was announced. 2017 production guidance across commodities remains unchanged, except for Kumba – where 41-43mt of iron ore output is being targeted (vs. 40-42mt guided earlier). In terms of capex, the guidance for 2017 has been reduced by $0.2bn to $2.3bn.