Anglo American plc (AAL) Earnings Call Transcript & Summary

Everybody, I'm Jason Fairclough. I run metals and mining research for Bank of America in Europe and EMEA. Very pleased to introduce our next company, Anglo American. Anglo has been a supporter of our conference for many, many years. So thank you for that, and thanks for being here in person, folks. Really appreciate it. Duncan Wanblad took over as CEO in mid-April. Former CEO, Mark Cutifani retired. Duncan previously ran the group's base metal and platinum businesses. He's been a key architect in the group's successful Quellaveco copper project in Peru. Also joining Duncan, I think, on stage, Stephen? No? All right. Also joining Duncan for moral support from the front row, we have Stephen Pearce, who's Anglo's CFO. So welcome both. And Duncan, looking forward to your presentation.

Thanks, Jason. Right. Good to be here. Good to see you all this morning. So I'm going to build a little bit on the themes that we've heard about this morning and Jason tried and talked about the relevance of mining and the industry per se to society at large in the future. And actually, I do think that, that's a really important takeaway for us. Obviously, we are important to what the world needs in the future. And without a doubt, I think, we can do an incredibly much better job in terms of telling our own story and being more appropriately valued for what it is that we do. As we just heard, not everybody really truly appreciate that their whole life, by and large, revolves around the products that we produce as mining. So you've heard it all before, I'm sure, that if it's not grown, it's almost probably certainly mined. And just to put some of that into context, mining itself only consumes less than 0.5% of the arable land or the habitable land on the planet surface. And to go with that, it only consumes less than 4% of the electrical power that's produced on the globe today. And in some way, shape or form, mining contributes or is part of the contribution of nearly 50% of the world's GDP, depending on which way you cut that data, but 40%, 50%, it's a really, really important part of the world we live in today, and I suggest it's going to be a really much more important part of the world that we need to live in tomorrow. So because it's this key enabler, and of course, it is going to be the thing that underpins cleaner, greener, more wealthier, more sustainable societies in the future, not only do we have to tell our story better, but I think we also have to do better because otherwise, we erode the value in that story and therefore, the value in the underlying business very quickly. So on the next slide, thank you, Emma, is the cautionary statement, which I'm sure that you all have or are going to spend loads of time reading in your own time. And I'll leave it at that, and we'll move on to the next slide, which is just a brief example of these global themes that are driving change in the world. So what we see on the outside of the circle are the things that are commonly known now as megatrends. Now you can go to any management consultancy in the world, and you will get 40 of them or so. We've distilled them to sort of a handful that I think are the most key and the biggest drivers of change, particularly in our industry. So there's no doubt that these megatrends are happening, and they happen kind of slowly. So the -- for sure, they happen over decades, but that is the direction of trouble, without a doubt. At the same time, there's this enormous change in volatility that we see happening around us. And we need to be able to adapt and to cope with that volatility, while bearing in mind that these are the trends that sort of change over the long run. Now in that volatility, it can feel like decades of passing in weeks, whereas these longer-term trends are much, much slower. And I think as organizations and as an industry, we need a hell of a lot more agility to be able to cope with that while keeping our eye on the future, keeping our minds on the things that actually make the big difference in the long run. So these major trends are fundamentally still defined, we believe, by growing populations and urbanization. So the burgeoning of the middle class. I mean that's never going to stop. Poverty eradication is fundamental to quality of people's lives and livelihoods. Technology is developing at one hell of a rate. Just think about what's going on in digitalization, it's pushing the boundaries of all sorts of areas at the moment. And all of that's going to happen. But most important and the most defining trend of our time, we believe, must be this issue of climate change and how the world reacts to that and what our role within that is going to be. On the next slide. It says, as everybody starts to get their head around, what climate change means and what energy transitions mean and how we all get to carbon neutrality at some particular point in time, I think, we've got to also get our heads around not what it is that we do, but how we do it. So it's clear that we produce the feedstocks that are required for this decarbonization. And there are several trajectories in which you can get to carbon neutrality by 2050. I'm sure we've seen them or published in various journals and various papers. So many different ways, but all of these are very likely, I reckon, to require much more of the materials that we produce. So just to put that into context, if the world is going to limit temperature rises to 1.5 degrees C by 2050, then things like battery electric vehicles are going to consume 3x more copper than is used in internal combustion engine today. More simply put, when wind turbines that are needed to produce some of this clean energy are more than 2.5x steel intensity -- more -- use more than 2.5x the steel that coal and natural gas energy production users per megawatt of product produced today. So this all needs scale and it needs time because -- and those 2 don't generally work together, right? So because if we're going to get to limit our temperature increase by 1.5 degrees C up by 2050, then technology has to develop at one hell of a rate and metals and minerals have to be [indiscernible] at one hell of a rate to kind of do that and keep the costs down. So just putting that into context, that would be another 17 million tonnes of copper that would be required by 2040 for that transition. And in my calculation, that's about 60 Quellaveco size projects most of which I would suggest to you today are not yet committed. So whether they're available or not is one thing, whether that can be brought on in time and at the right cost and in the right way is a completely different story. Now to underpin Gary's point, this is simply a demonstration, I believe, of the supply side of the world that I think we -- or the demand side of the world that we are having to face and what we're going to face up to. It's not an invitation to go and blow your brains out on spending a whole lot of capital, losing all the hard-earned discipline that we've kind of only just got our heads around doing over the last decade or so. But that is indeed the demand picture that we're looking into. On the next slide, if we're still doing slides, there, so what comes next must, of course, be the ubiquitous supply gap as a result of a demand picture as the one that I've just described. Of course, these are just copper terms that I'm talking to here that's the easiest one to draw pictures on. But without a doubt, this is true for most of the commodities that we're talking about as future enabling commodities. Now that gap will undoubtedly close quite a lot by things like substitution, by things like recycling, thrifting, changes of behavior. And technologies, of course, will come into play. But a lot of that is already built in to some of the pictures of the supplies that we see. For example, on the PGM side, almost half of PGM gross supply today is already recycled. So yes, there's room for more. But I submit that there's still going to be a requirement for high-quality primary source minerals, and that's going to be our job. And I don't think that there's a quick fix associated with this at all. For the longest time, we've seen some deeply embedded structural changes starting to happen in the industry, starting right out with the geology itself. Mines are getting deeper. Grades are getting lower. Ores are getting harder. Process metallurgy is becoming more and more complex. The geography of where these good rocks are found today are definitely more remote places, very unlikely to be in the OECD world. And the sustainability agenda is at a new high in terms of social consciousness, the consequence of which is use of water, use of land, environment. and collaboration with the communities, the host communities of the jurisdictions where these mines are located are now ever more important. Again, just for a little bit of context, I think, it was only about 10 years ago that you could get a permit for 1 of these mega mines in about 2 to 4 years. It's much more likely to be 3 to 8 years today for these big projects. On top of that, just to color in some of this complexity. When you get these permits, it's not just one permit that you need. For a mine like Quellaveco, there's more like 500 permits that you need over the life of the mine. And each of those permits comes with a set of conditions. So by the time you've wrapped them all up, you're in the world of sort of 3,000 to 5,000 permit conditions that you need to adhere to and live up to. Of course, it sounds like a hell of a lot of bureaucracy, but it's played predominantly to support and protect people and the environment. Notwithstanding that, whatever you think about it, it's going to cost more money, as Jason said in one of his first slides. And I think it's going to take a hell of a lot more time than people are allowing for it today. From the investment landscape point of view, these jurisdictions where some of these good rocks are now are way more political and a lot less stable than you would like. Just take, for example, some of the tax and royalty regimes that are under review across the world at the moment. And if you're going to invest money in these high capital intensity, long-dated projects, then for sure, you are going to need a financial certainty or a financial climate in which you are sure that, that investment is going to be stable and returning over a period of time. More complexity. The world today isn't awash with skills that are available to build these sorts of projects and then run these sorts of projects in these locations. We now compete with a whole bunch of different sectors, sectors like technology and banking, et cetera, et cetera, all seem a hell of a lot more s*** than getting into this mining world. And from start to finish, I think, today from the time that you put a hole through a deposit to the time that it actually gets running, you'll be lucky to do that in somewhere between 15 and 20 years. So still a fair amount of things to do. Moving to the next slide, Emma, just very briefly, I think that for -- if what I've said is true both on the demand side and the complexities associated with delivering into that demand at the right time, of course, that always needs to be important is the fact that this needs to be incentivized. And I think that the prices that you're seeing on your screens today, plus or minus in terms of what may feel like these very high top-of-cycle prices may very well [indiscernible] be secular so far as it's not just about incentivizing the supply, but it's also about how we deliver into that in the long run. So of course, these charts, as I said, talk just to copper, but you could put up a nickel chart here, you could put up a lithium chart, and I think you'd see exactly the same sort of thing on them. On the next slide, this is a story about how our industry absolutely needs to be a part of the solution. So it's not just about digging holes in the ground, bringing up the metal and shipping it off to a place where other people can do something with it and make other people's lives better. This has to be done in a right way and felt by everybody to be the right thing. We launched back in 2018, I'm sure you heard us speak of our sustainable mining plan. And the whole idea of that is it puts sustainability fundamentally at the heart of all of the decisions that we make as an organization. And I think today, it incorporates some of the most ambitious goals and targets that exist in the industry in this space. For us, absolutely, a holistic approach is absolutely essential. You just can't think about one aspect of a mine as development in isolation. This goes back to the supply points that I touched on earlier. And so to deliver our carbon goals, we obviously need the technological know-how, we need the permits, we need the land, not land for mining but land for renewable energy supply and infrastructure. We, obviously, need communities to come along this journey with us. We need the support of governments and regulators throughout. The chart on this slide speaks to our own pathway to carbon neutrality on our current portfolio, but I think that the thinking holds true whether these are for assets that are existing in your portfolio today or assets that you will acquire into your portfolio or build. Whether you're building or buying, whether these assets are going to be a good fit to your portfolio require their ability to actually be both sustained and supported in a way that is meaningful to a multitude of stakeholders, not just one group of stakeholders. And underpinning all of that is in Anglo American, what I'm sure you've heard of before, is our FutureSmart Mining concept. That is a vision that Tony O'Neil sort of brought to the table about 8 years ago, and we continue to lean into and build on to today. Speaking of FutureSmart. So just over a week ago now, we hit a really, really exciting milestone in the organization with the launch of our new-gen zero-emission haulage solution. That is a 2-megawatt hydrogen-powered ultra-class mine volt track. That's a pretty big beast, right? It's 220-tonne chassis delivers a 290-tonne payload and is designed to operate in real hard mining conditions. And you can see that in the little video that's playing in the background. So obviously, while the truck is the most visible element of our new-gen story, the production of clean hydrogen and the fueling technology is just as important. So it's the whole system approach that hooks all of this stuff together. It has to be an end-to-end sort of process. When we started this journey just a little bit more than 3 years ago, we knew that diesel was one of the biggest contributors to our Scope 2 emissions and that we needed to do something about it. There wasn't a hell of a lot in the market that allowed us to think that there would be a solution that would work for us at all of our operations across the world. And certainly, the solution involved in hydrogen just wasn't on the table at all, but we were deeply convinced of the fact that ultimately, hydrogen is the cleanest and the most sustainable form of energy management in the long term. So we developed it ourselves, and we started out looking around at what was available. Nothing was available. Power units of the size just didn't work, and then we had to do it ourselves. So 3 years ago, there was nothing. Last Friday, there was a proof-of-concept that was running around. It's now, I think, a one of a kind in terms of what it's designed to do and how it's going to be. In the future, hopefully, by the end of this decade is our target. You'll see a lot more of these deployed across our operations. Each one of these vehicles in its diesel format consumes 3,000 liters of diesel a day. When this is operating, we will have had the ability to ultimately eliminate about 80% of the emissions associated with diesel and diesel usage across our operations in the world. And at Mogalakwena, where we're road testing this at the moment, we believe that when the whole fleet is deployed and some of the support fleet is moved on to either battery electric or hydrogen, it would have been the same or the equivalent of having removed 80,000 cars from the road at the time. So I think that this just demonstrates from a FutureSmart perspective, that whatever mining challenges, whether they're operational, whether they're environmental, whether they're societal, mining is a great platform for innovation. And that's the kind of thing that can be done by. Now we started our FutureSmart mission primarily with the objective to make our operations safer, but that moved very swiftly into how to provide an offering that was a more relevant and more viable offering for mining to society at large. So the idea that we would use technology to minimize our footprint, be that land, be that water usage, be that impact on the local communities, we needed to, obviously, deal with these low grades that I spoke about, the more difficult to [ win ] ores the more difficult recoveries that come with the more complex geologies of these orebodies, technology was always going to have to be the solution to that, all with the end goal in mind that what we would do is come up with a solution that ultimately would be less capital-intensive than the current solution because it needed to be a smaller footprint. It would improve our productivity as well as improve our operating cost basis, which is what I think we've certainly been able to achieve so far and lots more to come on that runway. On our next slide. Thank you, Emma. Technologies is the one thing, right? So everybody talks about the truck, everybody talks about the system, the solar panels and the hydrogen-making units and so on. But actually, you have to put them all together. Holistically, each stage of an economy's development has been accompanied in some way, shape or form by an energy transition from one primary fuel source to another. And at the same time, it's also been accompanied by great growth in technology and technology development. I mean it behooves us to be a part of that journey rather than be a consequence of that journey. As economies develop, they become more complex, their energy needs to become more complex and more intense. But at the same time, I think, in today's modern world, society's expectations also certainly become more complex, and we speak with a louder voice. We know that as we move away from fossil fuels, towards more forms of renewable energy, we have to do this in such a way that we take people along this journey with us. So we have to be cognizant of what's going on in our producer countries, what's going on in the parts of the world where there's already a very deep reliance on carbon-intensive sources of energy, and we have to help them manage through that transition, that just transition is very much part of the journey and the mining story if we are going to be successful in delivering a carbon-neutral future for all of us. In March, we announced a partnership with EDF Renewables. The whole idea here is working in partnership with them, with governments and some of the NGOs that we would create a renewable energy ecosystem in Southern Africa. The idea behind this ecosystem, which basically comprises of on-site solar farms, off-site wind farms connected together via the grid to provide ultimately 100% of our own energy requirements in the region. At the same time, I mean, so that would be about 3 to 5 gigawatts of energy that we're planning on producing. You have to dream big to make these sorts of things happen and make them sustainable. Now whilst that would deal with the Scope 2 emissions, it creates other opportunities, right? If you think about this very holistically, our ability to now move this into not only just providing hydrogen for our own operations, but creating a little bit of an economy around that, that may well grow up to be a major economy over time. And so we see this much more than just energy. We see it as a partnership, partnership not only with the governments, but with key technology suppliers and that we can build on that to help aid this just transition to a carbon-neutral future that I've been speaking about. So an example of this is that in the areas where we're working now, we can conceive of the thing called a little hydrogen valley, which is an industrial corridor starting out because we have the kernel of this in terms of the hydrogen production units up at Mogalakwena. And if that all works out in the way that we envisage that it may well work out, this could add up to 14,000 new jobs per year and contribute more than $3.5 billion to the South African fiscus by 2050. So that's just another example of why the mining industry is really important, not just because of the mines or the metals that it mines and for what they use. But actually, the economies that they create in actually mining those metals and getting them to the market. On the next slide, we're talking a little bit about our sustainability long-term approach and the opportunities we have for all of our stakeholders. So our approach to sustainable development and long-term opportunities has been couched in this thing that we've put together called our collaborative regional development model. It's an innovative sort of model, fosters economic activity well beyond the mine in the regions in which we operate and is designed fundamentally to improve people's lives and create truly thriving communities well beyond the life of the mine. So it's not about what we do when we're there, it's also what we leave behind when we're not there anymore. To do that, really important that we listen quite carefully to the communities, to hear what they have to say and use tools that are now commonly available, but often driven by the swift development of technology like spatial analysis to understand the untapped potential of the regions within which we operate to help create these ecosystems like the hydrogen valley concept that I just spoke about earlier. Important we need to work with our partners to deliver these wins for all of the stakeholders that are engaged with us on this thing. It's important not only for us to survive today but for our workforces and the employment proposition that we offer to our employees. On the next slide, I'll talk a little bit more about our own portfolio. Now more than 90% of the development capital that we have on the books today is allocated to future enabling products. And I think that we have some outstanding growth options and opportunities on our books in the near future. So De Beers we've just delivered the Benguela gem. That's a diamond recovery and processing unit that operates off the coastline of Namibia that came on in quarter 1 this year on time and on budget and will deliver with it about 500,000 carats, very high-quality carats to the De Beers offering. Quellaveco itself, and I'm going to talk about that in a little bit more detail on the next slide. But Quellaveco itself is ready to come on more or less in the middle of this year. And we believe that it will contribute in and of itself something like 10% copper equivalent production to our own portfolio. In the meantime, we've got several smaller, relatively quick-returning projects that are due to come on in the next 2 to 3 years. Amongst those is the Sishen ultrahigh dense media separation project in the Northern Cape of South Africa and Collahuasi Phase 1, a copper expansion in Chile. Now beyond these approved projects, we have a number of opportunities like we can still develop out on Moranbah-Grosvenor in Australia, Mogalakwena in our PGM business, Sakatti in Finland and of course, the latest acquisition, which was the Woodsmith mine up in Yorkshire of the United Kingdom. So I think that, that's absolutely a fantastic pipeline to have when you consider this growth that's going to be required to meet the demands of its future. But that said, yes, I want to completely emphasize that how to bring these on is really, really important, doing them in the right way, thinking through them thoroughly, understanding the value that needs to be brought to them for them to have value at the end of the day is part of the equation. Okay. One more minute. That went on very quickly while we're having a whole lot of fun there, Jason. So on Quellaveco itself, we're really close now. And by the middle of this year, I'm hoping that we will have delivered this on time and on budget. That will be another 300,000 tonnes of copper equivalent at $0.95 a pound for the next 10 years of its life. And that will give us 36 years of life. It's these sorts of projects that we need to have in the portfolio. On Slide 13, which is the next slide, I wouldn't get away even if I only got 30 seconds left, while Stephen's in the audience and not talking about balance, bringing these on in a way that is completely thoughtful in terms of our balance sheet is important. Now we do have a strong balance sheet, 0.2x leverage at the end of last year. We have a through-the-cycle dividend of 40%, which we'll continue to pay. And while we do that, we will be able to bring on some very meaningful growth at the right time during the next decade. Our pipeline is going to deliver stronger margins. The consequence of which these margins mainly about 50% or so will bring our average margin in the portfolio to just over 45%. So bringing it all together, I'm just going to go to the last slide, please, that one. Thank you. I was asked, Jason, many times about what my strategy for the company is. And so just to forestall that, if that's the question that's about to come up, I am -- was the strategy guy, quite like the current strategy. So we're about executing that at the moment. But I do have a couple of really serious short-term priorities, and these are them. Safety is about the most important thing and absolutely, the #1, #2 and #3 thing on our agenda. We've taken a little bit of a hit during the COVID years, hit a bit of a plateau and that's completely unacceptable. So we're going to have to get back on top of that, get our merger back and hit our rhythm on that again. The second item is this idea of operational performance and stability. You don't get to execute any strategy. You don't get to build projects and so on and so on unless you're delivering 100% from the existing operations. Again, through the COVID years, had some difficulties associated with the way that we've had to structure work with a number of people we've been able to have on site. We have this fantastic thing called an operating model. It works extremely well. We need to bed that in and keep that performing. I hope, as I've discussed during the presentation today and made clear, we have a massive role to play in the society, and delivering our own journey to carbon neutrality is really important. We've got a number of pathways to get there between now and 2040, but we have to build out some plans against that and have that delivered. And last but not least, of course, timing these projects right, developing them right, getting the homework right on them and then bringing them on like a Quellaveco is about the most important thing that we've got to do in the short term. And I'll leave it there, Jason.

Okay. Could you join with me, please, in thanking Duncan for his presentation?

Good. Fabulous. Okay.