2022 Full Year Results Q&A
2022 Full Year Results Q&A
Q&A
Thursday, 23rd February 2023
Jason Fairclough (Bank of America, Merrill Lynch): You are super excited about
Woodsmith, there is all this upside, and then you are taking quite a big write-down very early
in the project. What has surprised you about the project? Why the write-down?
Duncan Wanblad: The write-down is very much a function of the application of the
accounting rules and the prudence that we would have to apply to these things, given what
we know of the project today. It does not build in all of this upside that I've been speaking
about and that we are very confident is going to be there, but we have to deliver it right. And
that is the work that we are planning to do.
Stephen Pearce: I do not want to talk down the accounting profession in any sense, but
there is a fundamental difference between what you have to do, both from management and
an audit perspective, in terms of a long-dated discounted cash flow model, and the
assumptions that you have to be able to verify and tick off to put in that over time; versus a
model and a belief that you would have in terms of the true value that you think you could
deliver over time. And we are in that circumstance.
In the detailed note on the carrying value and the write-down (Note 8, page 64 of the Anglo
American Preliminary Results 2022), we have included sensitivities because we are using a
very high discount rate, which is appropriate for accounting models at the moment as it is
greenfield in nature. If that comes back to the corporate WACC (weighted average cost of
capital), in theory, the NPV and accounting view of the value rises significantly. Similarly with
the price, we have put the sensitivity in there for you as well.
Jason Fairclough: What has surprised you as you have taken over the project?
Duncan Wanblad: When we acquired the project, it was one of the most attractive options
that we saw. We knew we were going to have to do a lot of work to really get under the skin
of this and do in a way that was consistent with a project that would exist in Anglo
American for multiple decades. A lot of the things that we picked up during the due diligence,
which we had access to at that point in time, are all playing out as expected in the design and
the delivery of the project.
Danielle Chigumira (Credit Suisse): When Woodsmith goes to board for approval, what
form will it be in? Will it be the 5Mtpa version, the 13Mtpa version, or something in between?
Duncan Wanblad: We will take the project in phases to the board for approval. The board
approved the $800 million for 2023. We will have to go back to the board at the end of this
year to give them an update on the project, how the development has turned out and we will
get partial approvals to get to the point where we have dimensioned all of the risk and have
the right level of engineering in the project. I would suggest that there is another couple of
years; we would certainly want to get more detail in the sandstone before we had completed
the design on this project, and we really want to understand the sink rate and the time to get
to the bottom before we took it to the board for final approval. It is at least two years out, I
would think, from a final approval for full notice to proceed in the way that you would have
thought about Quellaveco.
Danielle Chigumira: In 2024, when you are in the sandstone, you will be in a position to
take the 13Mtpa version to the board for approval. Is that how we should think about it?
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