‘Nothing off the table’ in Anglo’s review of assets
Diversified mining major Anglo American is reviewing its assets in a process that might see it dispose of businesses that are not fit for purpose in an effort to protect shareholder value and rightsize the group for growth.
CEO Duncan Wanblad said on Thursday that the group, one of the largest constituents of the JSE, where it has a secondary listing, was “systematically reviewing” all its assets in conjunction with detailed mining plans.
“We will then take further actions that are absolutely going to be needed to ensure that every asset is competitive and we are working towards positioning most of our key assets in the bottom half of their respective cost curves,” said Wanblad.
“As we continue to go through these assets systematically, we also have to assess the role of every asset in the portfolio. As we go through that process I want to assure you that nothing is off the table.
“There has to be a very clear value rationale for the asset to be in or out of the portfolio.
ASSET PLAN
“There are a number of important components to value. So, when we look at this through the assets review, we have to actually look at the actual plan for that asset, we have to look at the markets in which that asset operates ... and we certainly have to be cognisant of any of the frictional cost of change to either adding or removing assets to the whole of the portfolio.”
The group’s year to end-December results took a pounding from a plunge in the prices of platinum group metals (PGMs) and weak demand in diamonds, which saw the two commodities contributing to a $5.5bn drop in revenue in the year under review.
This, coupled with weak demand for diamonds in the key markets of the US and China, saw Anglo write down $1.6bn in De Beers’ value.
The mining house said it would also impair $500m for its Barro Alto nickel mine in Brazil.
The impact of poor performance in the PGM and diamonds businesses saw the group’s earnings before interest, taxes, depreciation, and amortisation (ebitda) tank $4.4bn.
The group’s copper and iron businesses were star performers, contributing $7.2bn, or 72%, to ebitda.
The debt position in the period rose $3.7bn.
New CFO John Heasley said the focus would be on reining in costs and improving the group ’ s cash generating capacity.
He said the group would not wait for a rebound in PGM prices and increased demand for diamonds to take corrective measures to set the group on a
sustainable path. The sentiment is shared by the group’s top brass, chair Stuart Chambers and Wanblad.
“While unit costs are clearly an important measure for the industry and for us, to truly tackle costs and cash generation, I will be very much focused on total costs, which are closer to $22.5bn and include certain overheads, third party commodity purchases, royalties, logistics and exploration,” Heasley said.
“As we announced in December and as you have seen in our recently announced restructuring in SA, we are well advanced with plans to continue to drive a cost culture through the operating businesses ... I will be looking at all cash items to ensure we have a more sustainable cash generation profile going forward, even in the absence of a price recovery in diamonds and PGMs.”
The group said it was on course to cut about $1bn in annual operational costs, on top of the $1.6bn in capex cuts over the next two years it announced in December.
Companies in the group’s stable, Anglo American Platinum (Amplats) and Kumba, this week announced major restructuring of their businesses with thousands of jobs on the line.
RETRENCHMENTS
Amplats started a process likely to result in the retrenchment of 3,700 employees across its platinum mining business as it seeks to reduce R5bn in costs while reviewing contracts with 620 service providers.
Kumba said on Tuesday that 490 workers might lose their jobs. Contracts with service providers were being reviewed as the iron ore producer sought to cut costs at least R2.5bn this financial year.
Chambers told investors that the group’s long-term prospects were excellent, highlighting its “extraordinary” set of resources in copper, high-quality iron ore and now in polyhalite.
He said that in several cases the group had endowments potentially exceeding a century of mine life.
“However, to exploit these assets and to invest in them, we need the right balance sheet and sustainable financial performance. Last year’s financial performance was poor. We had some serious headwinds in PGM prices and diamonds. But Duncan and his team are not sitting and waiting around hoping for those cycles to bounce back,” he said.
COST CUTTING
“We have to pull every lever available to significantly impose our cash conversion, which last year was at an unsustainable level. We are re-establishing operational excellence as a way of life for us.
“We are continuing the significant cost reduction started last year and continuing throughout operations this year ... Duncan is also clear on the need to simplify our portfolio in order to allocate any extra cash we have to the most deserving long-term growth prospects.”