Page 4 - AMANGO 2017 CASE STUDY 2

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dilemma is and what knowledge areas from your school work will be most applicable to help the board to
reach a decision!

3. STRATEGIC (BACKGROUND) UPDATE ON AMANGO GROUP PLC

Below is an excerpt of AMANGO Board Chairperson’s Strategic Report accompanying the 2017 audited
group financial statements as released in February 2018 and attached in Appendix 2 of this case study.

Financial and operating performance: Since the start of the mining commodities crisis some 4 years
ago, AMANGO has reduced its number of operating assets by 26. Crucially though, we were determined
not to sell assets below their inherent value – not even during the dark days of late 2016 and early 2017,
after the slump in mining stocks had accelerated, abetted by the aggressive ‘shorting’ actions of certain
hedge funds, which at one stage accounted for about 20% of our share register. Accordingly, in the first
six months of the year, the only major asset we agreed to sell was our niobium and phosphates business

(AMA-NP) in Brazil, for which we received $1.5 billion – well above market expectations. Later in the
second half, however, market sentiment improved on the back of substantially strengthening prices for
iron ore and both metallurgical and thermal coal. We also disposed of a number of minor assets as we
continued to tidy up our portfolio so that total proceeds for disposals amounted to $1.8 billion for the year.
We however did not proceed to unbundle our residential properties in South Africa after noting that the
deal structure was still not going to meet the Black ownership provisions of the pending Mining Charter.

We delivered a profit for the financial year of $1.9 billion, with a profit attributable to our equity
shareholders of $1.6 billion. At the same time, continued capital discipline resulted in capital expenditure
declining from $4.0 billion to $2.5 billion, while no new major projects were approved. The performance
was bolstered by an across-the-business improvement in productivity of 18% as we progressively rolled
out our Operating Model and sold a number of less productive assets, with copper equivalent unit costs
declining by 9% in dollar terms. This was mainly achieved by careful control of the wage demands and

industrial action in Australia, for which we managed to contain its potential group-wide implications.

Medium and Long-term Debt was reduced from $16.3 to $11.3 billion, slightly above our year-end target
of $10 billion. We continue to plan for somewhat lower debt levels, given the continued volatility in the
mining industry, with a major focus on restoring our credit rating from junk -and back to investment grade.
Although we maintained a high level of liquidity, the imperative to restore the balance sheet meant,

regrettably, that dividends remained suspended. With the company now in a much healthier state,
however, and prospects for prices a little more positive, the Board is targeting reinstatement of the
dividend for the end of 2018 (payable in 2019). When dividends resume, we will change to a pay-out
ratio-based policy, the details of which we will define at that time. The purpose of the change is to provide
shareholders with exposure to improvements in commodity prices, while retaining cash flow flexibility
during periods of weaker pricing.

The CFO Case Study Competition Pack (Extended scenario)
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