Anglo American takes fresh US$1.6B writedown on UK fertilizer mine

Anglo American (LON: AAL) swung to a loss in the first half of the year after taking a fresh US$1.6 billion writedown on its Woodsmith fertilizer project in the UK, adding challenges to the company’s ongoing overhaul that involves shedding four units.

Anglo announced the restructuring strategy in May after successfully fending off a $49 billion takeover bid from BHP (ASX:BHP), the world's largest mining company. The 18-month plan focuses on exiting diamond mining by divesting its De Beers unit, separating its platinum operations, and selling its coal mines.

The company attributed the impairment at Woodsmith to a decision to "temporarily slow down" development of project, which Anglo rescued from collapse four years ago. Anglo took a $1.7 billion hit last year due to a prolonged timeline and higher costs at the mine, which will produce polyhalite — a new type of organic fertilizer that has not yet been tested at scale.

Regarding its coal assets, the company will conduct a two-stage auction process, which has been delayed by a major fire at the Grosvenor mine. Anglo said the Queensland, Australia asset would probably only resume operations under a new owner.

"We are transforming Anglo American by focusing on our world-class asset base in copper, premium iron ore and crop nutrients,” chief executive Duncan Wanblad said. “As we progress our portfolio transformation, we expect to substantially reduce our overhead and other non-operational costs in phases, but weighted towards the end of the process to minimize business risk.

Core divisions excel

Revenue in the half year to June 2024 fell by 8% to $14.5 billion while underlying profits were down by 23% to $1.29 billion. Net losses were $672 million, compared to a profit of $1.26 billion a year ago.

About 70% of the earnings came from copper and iron ore, the two divisions Anglo is keeping, along with Woodsmith.

Wanblad said he was "very encouraged" by the company’s "strong" operational performance. “[We] delivered steady volumes and a 4% improvement in unit costs, while still facing weak cyclical markets for platinum group metals and diamonds,” he said.

The results beat analyst consensus forecast thanks to a stronger-than-expected performance from the copper division. The interim dividend of $0.42/share was also higher than market estimates by 9%, BMO metals and mining analyst Alexander Pearce wrote on Thursday. 

“All things considered, this appears to be a positive set of results from Anglo,” said Christopher LaFemina, analyst at Jefferies. Still, there are “relatively high risks associated with the company’s proposed restructuring plan,” he noted.

The company reiterated 2024 production and cost guidance for most of the portfolio, but lowered De Beers’ expected production for the second time this year to 23-26 million carats from 26-29 million carats previously.