Anglo loses R93bn in value
• Share price tumbles amid news of $1.8bn cut in capex • Mining giant is also reviewing its Amplats operations
Anglo American lost R93bn in market value on Friday, testing CEO Duncan Wanblad’s resolve to steer the global mining titan through the downturn in the commodity cycle by cutting production to reduce costs.
Anglo announced on Friday that it is targeting a reduction in capital expenditure of $1.8bn between now and 2026 to soften the blow of weaker commodity prices.
This comes after reported talks with the government in late November over a potential reduction in its workforce, which goes beyond the planned corporate job and head office expense cuts.
The sharp drop in market valuation came as the share price sank 13% in its biggest oneday fall since the global financial crisis in 2009, suggesting that investors were caught unaware by the reconfiguration of its production plans.
While Anglo has a diversified portfolio of minerals spread across the world, it is still rooted in SA, where it was founded more than a century ago.
It is the majority owner of Kumba Iron Ore, Anglo American Platinum (Amplats) and De Beers, which together contribute hugely to the country’s corporate tax base and mining royalties.
Like most miners, they are at the mercy of unpredictable commodity markets, a problem that has been compounded by a deterioration in SA’s rail network, which has forced Kumba to slash production to manage stock levels at mines.
The output rationing over three years implies that Kumba may not fully benefit from the subsequent rise in export iron ore prices.
Kumba, whose iron ore stockpiles grew to 9-million tonnes by September due to rail bottlenecks, said it expects to end 2023 with production of between 35-million tonnes and 36-million tonnes, from the previous forecast of 35-million tonnes to 37-million tonnes.
SA’s top iron ore producer has also lowered its production outlook for the next three years to between 35-million tonnes and 37-million tonnes a year, from previous targets of between 37-million tonnes and 39-million tonnes in 2024 and 39-million tonnes and 41-million tonnes in 2025.
State utility Transnet ’ s ability to efficiently move bulk commodities to market is being undermined by a shortage of locomotives and spare parts, as well as incidents of copper cable theft on its network.
Mergence Investment Managers estimates that SA lost R220bn in potential export revenue from coal and iron over the past five years due to Transnet’s underperformance.
Transnet, the private sector and other stakeholders are working to find solutions to the problem through the national logistics crisis committee.
The tepid post-pandemic recovery in China has largely undermined commodity prices, as has the effect of higher global interest rates and the ongoing war in Ukraine.
The London- and JSE-listed miner, which had already targeted a saving of $500m by cutting corporate jobs and some head office costs in Johannesburg and London, aims to cut an additional $500m in 2024.
“In the near term, given continuing elevated macro volatility, we are being deliberate in reducing our costs and prioritising our capital to drive more profitable production on a
sustainable basis,” Wanblad said in a statement.
Its cost-cutting measures also include focusing on highermargin production for its platinum group metal operations in SA and putting one processing plant at its Los Bronces copper mine in Chile on care and maintenance.
Its share price ended Friday at R455.68 on the JSE, the lowest level since November 2020.
Anglo has made “significant production guidance cuts for certain commodities”, Anchor Capital investment analyst Seleho Tsatsi said in a note.
“Though the share price reaction is strong, we think the lower earnings outlook is able to justify a meaningful part of it.”
However, the risk-to-reward ratio in holding the stock is now more balanced, he said.
Anglo’s core profit is expected by a group of 11 analysts to be $10.2bn in 2023, down from $14.5bn last year.
Anglo said it is also reviewing its Amplats operations. “If we cannot see sustainable value on every ounce we mine, then we’ll take those ounces out [of the equation],” Wanblad told investors.