Anglo American suffers biggest drop since global financial crisis

ANGLO American Plc suffered its biggest daily drop since the global financial crisis on Friday, after unveiling plans to drastically cut production in a bid to reduce costs amid logistical and operational snarls.

The mining giant’s stock plunged over 13 percent (or around R70 a share) to wipe out around R93 billion off its JSE market cap. It closed at R455,68 a share, which brings the group’s share price slide for the year to almost a third.

While Anglo has had well-publicised issues with its platinum and iron ore operations in South Africa, the biggest and most surprising cuts came at its copper business in South America. Its mines there are the company’s crown jewels, producing a commodity that many in the industry expect to face growing shortages later this decade.

Anglo lowered its 2024 output target for copper to between 730 000 tonnes and 790 000 tonnes, from as much as 1 million tons, essentially removing the equivalent of a large copper mine from global supply. Production will fall even further in 2025, before starting to rise again the following year.

The company’s biggest problem is its Los Bronces mine in Chile. Like many of the industry’s biggest copper mines, the operation is more than 100 years old, and Anglo is now struggling with hard ore that contains low grades of metal.

Rather than mine this expensive-to-process ore, the company has decided to wait until it can blend it with higher grade material. Unfortunately for Anglo, that will take several years.

The miner’s shares plunged as much as 19 percent at one point on Friday, the most since October 2008.

The stock has been weighed down by struggles in its diamond business and slumping prices for key commodities such as palladium.

While most of the commodities Anglo mines are currently in surplus amid weak demand from China and sluggish economies elsewhere, the scale of the company’s production cuts will likely add to expected shortages of some materials going forward.

Copper is an essential material needed to decarbonise the global economy, and most analysts and mining executives see a looming shortage of the metal, with few new mines on the horizon.

The near-term outlook for copper supply had already tightened in recent weeks, as protests against First Quantum Minerals Ltd.’s huge Panamanian mine forced the company to halt production, even before the government formally ordered a shutdown of the operation.

The production slump will also add another headache for Anglo’s relatively new chief executive officer, Duncan Wanblad, who has already faced a tough start to his tenure. He stepped into the role with most commodity prices at a record, but they have declined since then.

The company’s portfolio also has been hampered by issues from extreme weather to a breakdown in crucial infrastructure in South Africa.

The miner will reduce expenditure by another US$500 million next year, on top of a US$500 million reduction already announced. It plans to cut its capital spending by US$1,8 billion though to 2026.

“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.

Overall, Anglo’s production will be about 4 percent lower next year, before falling another 3 percent in 2025, it said.

It also lowered forecasts for platinum-group metals, iron ore, nickel and coal.

The company has been battling challenges in its South African operations, tackling slumping prices for PGMs and the poor performance of rail and port infrastructure that’s stymieing iron ore exports. Anglo said its PGM output could fall to as low as 3,3 million ounces next year, from 3,8 million ounces this year.

Lowest PGM returns

in three decades

Returns for PGM miners are “at the lowest point seen in this industry in the past 30 years,” Wanblad said.

The prices of palladium and rhodium have fallen fast this year, decreasing 46 percent and 65 percent. Platinum has fared better, slumping about 14 percent.

Anglo American Platinum Ltd. will postpone plans to build a third concentrator at its flagship Mogalakwena mine and to expand production at its Amandelbult complex, according to Wanblad.

“While it is clearly not positive that Anglo has come to this situation where it needs to shrink its footprint, we think this new streamlined Anglo American should allow it to shed some of the recently more challenging aspects of the business,” RBC Capital Markets analyst Tyler Broda said.

SA job cuts

Bloomberg News reported last month that the company was also considering cutting jobs at two units in South Africa because of declining PGM prices and bottlenecks curbing iron ore exports.

The miner has held talks with the government over the potential reduction in its workforce. Senior government officials had asked the company to consider delaying the cuts until after elections likely to take place around May.

Constraints on the South African staterun railway that moves material extracted by Anglo unit Kumba Iron Ore to Saldanha Bay port, north of Cape Town, are unlikely to be fixed until at least 2025, according to Wanblad.

The company is unable to stockpile any more iron ore on-site, so has begun to lower the volumes it’s mining, he said. “Unfortunately, the logistics just haven’t been there.” — Moneyweb