Anglo American Plc has taken a $1.7 billion write-down on the giant polyhalite project under development in northeast England that it rescued from collapse three years ago, and now expects first sales in 2027.
The London-headquartered company, reporting its FY2023 financial results on Feb. 23, said the recognition of the impairment to the Woodsmith project is due to the extension of the development schedule and capital budget compared to what was previously anticipated.
In order to ensure the delivery of maximum commercial returns from the operation over the expected multi-decade life of the ore body, Anglo said the design capacity is now expected to increase from around 10 million mt/y to around 13 million mt/y, subject to studies and approval, which will require an annual capacity investment of around $1 billion between now and 2027, when it expects first production and sales.
The company approved a capital investment of £650 million (approximately $0.8 billion) for the Woodsmith project for 2023. It spent $522 million on the project last year.
“We need to invest more upfront to expand the capacity of Woodsmith’s core infrastructure, helping us lock in the options for future expansions as the market for polyhalite develops, ” Anglo American Finance Director Stephen Pearce told analysts at a company earnings call on Feb. 23.
“But we are being prudent. We are taking a phased approach to the build where we can invest capital in the right way, when we need to, and more importantly, as the market [for Poly4 – the marketed form of polyhalite] develops,” he said.
Anglo anticipates building up output from the initial product start in 2027 to 5 million mt/y in 2030. The Woodsmith project still needs to go the Anglo Board for final approval.
“While the project is going to be set up to be able to deliver 13 million mt/y, this doesn’t mean we will go to 13 million mt/y on day one, but you have to have options,” Anglo CEO Duncan Wanblad told analysts.
Wanblad reminded that the market for polyhalite is one the company needs to develop over time in order to realize full value for the product’s qualities.
He conceded that Anglo still has a lot of studies to do to optimize not only the mining, but also the distribution of the product and getting it to market, as well as building the value accretive case for the product rather than “just relying on product price substitution.
“Firstly, if we take a nutrient substitution logic to the price; that is, if we gave a customer a bag of Poly4 that contained the same blend of key nutrients that they typically buy, they will pay around $170/mt. That’s a long-term real price at 13 million mt. But this is a ‘backstop’ price, based on simply substituting another source of nutrients for Poly4,” Wanblad said.
“But, as I have said, Poly4 brings more benefits than just the nutrient content. Crop trials give us more confidence that Poly4 delivers better results than the same blend of nutrients available today,” he added. “We know Poly4 produces better yields compared to standard practice. If we secured even just around 30% of that additional value, it would translate to roughly $100/mt additional price uplift for Poly4, and that is only on the yield benefit, not yet considering the other categories of benefits.”
However, while acknowledging not all these price premiums may be available straightaway, and not all customers may pay all of it straightaway, Wanblad ultimately expects to move to a price reflecting the full range of product and sustainability benefits, including the low CO2, soil health, and organic qualities of the polyhalite mineral.
“For now, we have limited those potential premia into our models to around $20/mt taking us to a price of ~$190/mt,” he said.
At the time Anglo acquired the Woodsmith project as part of its acquisition of financially ailing Sirius Minerals Plc in March 2020 (GM March 20, 2020), Anglo was suggesting a price of around $125-$140/mt.
Woodsmith comprises a greenfield deep underground mine south of Whitby in North Yorkshire and a 37 kilometer tunnel that will transport the polyhalite to new processing and shipping facilities on Teeside.
Anglo said during 2022 it has been enhancing the project’s configuration, including the capacity of the shafts and other infrastructure to accommodate higher production volumes and more efficient and scalable mining methods over time.
It reported that the service shaft is now more than 360 meters deep, while shaft sinking began 120 meters below the surface for the production shaft last month, as planned. The mineral transport tunnel is now past the 21 kilometer point and is more than 56% complete.
One of the three intermediate shafts that will provide both ventilation and additional access to the mineral transport system (MTS) is complete. The Lockwood Beck intermediate access shaft was completed last year and is fully lined and connected to the tunnel. Work on the MTS shaft at the mine is now 85% complete and the excavation of the final intermediate access shaft at the Ladycross site started in early 2023, the company said.
Anglo paid just £404.9 million (approximately $481 million at March 2020 exchange rates), or just 5.5 UK pence in cash per share for Sirius, angering many of the small private and retail investors who considered the sale price “low ball” and “bargain basement.”
At the time of the acquisition agreement, then Anglo American CEO Mark Cutifani defended the group’s offer, saying it was “fair and reasonable,” given the outstanding capex requirements of the Sirius polyhalite project (GM Feb. 21, 2022).
Like many of its peers, Anglo reported lower profits and smaller shareholder returns for full-year 2022, reflecting a fall in commodity prices last year.
Nevertheless, the company’s reported adjusted basic earnings per share for full-year 2023 beat the average analyst estimate, coming in at $4.97 versus the year-ago $7.22, and above the average estimate of $4.85 (Bloomberg Consensus).
Anglo posted a 32% decline in adjusted net profit to $6.04 billion, down from $8.9 billion a year ago, and above the average analyst estimate of $5.79 billion. Adjusted EBITDA fell 30% year-over-year to $14.50 billion (average estimate: $14.45 billion) and revenue was down 15% to $35.12 billion (average estimate: $36.01 billion).