Anglo American Platinum : Annual Results 2017

Anglo American Platinum delivers on commitments to restructure portfolio and reposition business
Company reinstates dividend

Key features

• Tragic deaths of six colleagues during 2017
• R2.4 billion free cash flow generated from operations
• Return on capital employed doubled to 18%
• Reintroduction of cash dividend of R900 million or R3.49/share for H2 2017
• High quality earnings, with EBITDA of R12 billion and strong cash conversion of 0.58
• Strong balance sheet with net debt further reduced to R1.8 billion from R7.3 billion
• Repositioned the portfolio with 70% of production in the first half of the cost curve:
  • R1 billion sale of long-dated Amandelbult mineral resources completed
  • Pandora JV stake sale completed and operational control of Baobab concentrator secured for three years
  • Union mine divestment completed - R400 million upfront proceeds received (post year-end)
  • Bokoni placed on care and maintenance - 470,000 platinum ounces of loss making production removed since 2012
• Total PGM production up 1% despite removing loss-making production from Bokoni and Maseve as well as the unplanned stoppage at Mototolo to complete remedial work on the tailings facility
• Record production from Mogalakwena and Unki - striving for operational excellence
• Unit costs down 2% to R19,203 per platinum ounce through strict cost control and after measurement of ore stockpiles
• Disciplined capital allocation - focused on sustaining capital and value enhancing, quick pay back projects
• Positioning for the future - ongoing studies into high-margin, value enhancing projects, continued investment in market development, mining innovation, people and communities.

Chris Griffith CEO of Anglo American Platinum commented: 'I am pleased to present a strong set of results for the 2017 financial year. We have delivered on our commitments of improving operational performance, repositioning the portfolio, ensuring industry-leading cost-control and through disciplined capital allocation.

Our fatality performance was both disappointing and unacceptable, we lost six of our colleagues last year in work related incidents. We have already extended our deepest condolences to their families, friends and colleagues, and do so once again. We have a turn-around programme in place to address this poor performance and we continue to strive towards elimination of fatalities.

Our persistent focus on value, rather than volume has resulted in a 32% increase in EBITDA to R12 billion and improved headline earnings. We generated R2.4 billion of operating free cash flow and materially improved our net debt position to R1.8 billion, with a net debt to EBITDA ratio of 0.2 times. The hard work of the past five years has enabled us to today announce that we have reintroduced the dividend, establishing a pay-out ratio of 30% of headline earnings. This equates to a dividend payment of R3.49 per share for 2017.

Anglo American Platinum is now a fundamentally different business, having restructured and repositioned the business. We have seen our productivity increase by 58% since 2012, and now have 70% of our production in the first half of the cost curve and generated an EBITDA margin and ROCE of 18% respectively. We are a more efficient and more competitive business, generating better returns.

Looking forward, our focus will continue to be on operational excellence, and strengthening the underlying cash generation of the business. We will maintain strict capital allocation discipline, while considering value-enhancing, quick payback projects, and continue to progress the project studies at our world-class assets.'

Anglo American Platinum today reported strong results for the twelve months ended 31 December 2017. The Company successfully delivered against its key objectives by substantially improving operational performance across the portfolio; repositioning the portfolio to own and operate the best, highest margin assets in the platinum group metals (PGM) mining industry; cutting loss-making production; and investing for the future to create a sustainable business.

The Company however, had an unacceptable safety performance, with six fatalities. While significant progress has been made in improving total recordable case injury frequency rate, the number of fatalities is unacceptable and together with unions and employees, a revised safety, health and environmental strategy has been developed to improve the Company's safety record. The Company's safety aspiration is to eliminate fatalities and it is committed to turning around the poor fatality performances of 2016 and 2017.

In 2017, significant progress has been made in the repositioning of the portfolio, with the disposals of the sale of the Company's 42.5% stake in the Pandora joint venture (1 December 2017), as well as the completion of the sale of the long-dated resources at Amandelbult (6 December 2017). In addition, Atlatsa Resources placed the Bokoni mine joint venture operation on care and maintenance, also removing loss-making production. This allows the Company to focus on the most competitive assets, consisting of largely open-pit and more mechanised operations which will result in higher margin production, a smaller and more highly skilled workforce, safer operations and a less complex organisation. The core operations will benefit from dedicated management attention and technical expertise, as well as disciplined capital allocation.

As a result of improved operational efficiencies across the portfolio, total PGM production was up 1% with record breaking production from both Mogalakwena and Unki. This was despite the removal of loss-making production from Bokoni and third-party purchase of concentrate from Maseve and the unplanned stoppage at Mototolo for remedial work on the tailings facility.

Despite difficult market conditions, the company generated a strong financial performance in the period. Anglo American Platinum is reporting a stronger EBITDA of R12 billion, up 32%, benefitting from improved operational performance. The Company has also displayed strong cost control in the period, with lower operating costs, lower overheads, lower restructuring costs and the benefit of the exit of Rustenburg. Unit costs fell 2% - at R19,203 per produced platinum ounce (2016: R19,545).

The Company generated R2.4 billion of free cash flow from operations, combined with sale proceeds from asset sales and the last tranche of a customer prepayment, contributed to a significant reduction of net debt to R1.8 billion from R7.3 billion.

Dividend
The Board has declared a final cash dividend of R3.49 per share, which is equivalent to a 30% headline earnings pay-out ratio. This is in accordance with the Company's capital allocation framework and its commitment to sustainably return cash to shareholders through the cycle, whilst retaining a strong balance sheet.

Market development and outlook
PGM market development continues across several demand segments including jewellery, investment and industrial as well as supporting the widespread commercial adoption of the hydrogen economy which will assist in the commercialisation of fuel cells in the transport and other sectors. Anglo American Platinum is committed to advancing future technology to create a modernised business, whilst investing in employees and the communities in which it operates.

Forecasts suggest that the three major PGMs, platinum, palladium and rhodium, should collectively be in deficit again in 2018. Rising vehicle production volumes and a healthy global economy should drive higher demand while primary mine production is likely to be relatively unchanged compared to the previous year.

Guidance
PGM production guidance is 4.75 - 5.0 million PGM ounces and platinum production guidance of 2.3 - 2.4 million ounces, refined production and sales volumes will be in line with production.

Outlook
Looking ahead, with the current and expected market conditions for PGMs, the Company remains focused on its strategy to deliver change and build a resilient business, having restructured and repositioned the business to become more resilient despite an ongoing volatile PGM pricing environment.

Discover more information in our Annual Results Booklet.