The world’s number five diversified mining company, Anglo American announced a “radical portfolio restructuring” a month ago. The company with roots going back more than a hundred years to South Africa’s gold and diamond fields said it would cut around 85,000 employees, almost two-thirds of its workforce.
London-listed Anglo also said it’s reducing the number of mines it operates from 55 to the “low 20s”. According to CEO Mark Cutifani Anglo would focus on diamonds, copper and platinum because of better long-term potential. Only cash-producing (good luck with that) nickel, coal and iron ore assets will be kept in its portfolio.
The continuing rout in metals prices, renewed weakness in iron ore and a darkening outlook for diamonds (once Anglo’s secret diversification weapon) are convincing investors – already unhappy about slashed dividends – even these cutbacks may not be enough.
Anglo’s ADRs (OTCMKTS:NGLOY) trading in New York plummeted more than 10% on Thursday. The counter is now trading an eye-watering 80% below its level a year ago, falling to less than $5 billion in market cap. Debt is in the region of $13 billion.
In a curious bit of pre-emption Anglo’s largest shareholder, South Africa’s Public Investment Corporation which manages state pensions and owns 9% of the company, warned management on Thursday not come looking for more cash.
“The board and management of any company should first explore all cost-cutting options available to it in order to ensure the future of the company, before engaging with shareholders for a financial injection to salvage the company,” PIC said in an e-mailed statement quoted by Bloomberg.
Cutifani has vowed not to tap shareholders for an injection, but judging by today’s sell-off where Anglo was once again the worst performer in a pretty dismal field, investors are betting deeper discounts on the share may be in the offing.
Apart from a sudden rebound in commodity prices (aka divine intervention) and barring extending a begging bowl, how can Anglo feasibly recover?
The company has already learned that the first cut isn’t always the deepest. But anything more radical than what is already underway would begin to look a lot like a break-up of one of mining’s marquee names.
9 Comments
Gary
Who would have thought that the almighty Anglo American of the 70’s-80’s would have ended up like this?
s dykes
This is no surprise during the high metal price part of the cycle the large mining companies tend to forget about the basics and start buying all sorts of medium to high cost producers in a race to add reserves to the bottom line, no matter the costs. They forget the cyclical nature of the mining business. Instead they should concentrate on low cost producers that are still profitable in these markets. The purge is underway removing the middle to high cost producers that have created the over supply. Mining is cyclical by its very nature and the opportunities are ripe for those who know how to identify those low cost producers.
Pyrope
Absolutely spot on. I’ve said it before and it needs saying again, the price of many commodities isn’t spectacularly low when you look at their long term (50-70 year) averages. However, people five years ago seemed to think that the bubble pricing then abounding would last forever, that’s why they decided to call it a ‘supercycle’ and ignored the fact that it had all the hallmarks of a classic speculation-driven investment bubble, supercharged by QE. I remember laughing out loud in a presentation in 2010 when one particular company was bragging about their wondercrump new prefeasibility study that showed they could extract gold for ‘only’ $1500/oz. They were fools then, and the folks who threw money at them were merely fools following the fools. Long-term, true consumption demand will settle itself back into sane territory in time, and then people will find that those who knew how to make money in the 1990s will again be the ones to invest in.
piet
Said long ago that the CEO will leave Anglo as in tatters as he left AGA when he was appointed…….. The downturn just hastened it. The Company is not run by people with courage and passion for what they do but run by scared pension seekers protecting themselves. Its to late now baby its to late now.
Nick
AAC should have been placed in a better position than it currently is quite a while ago. It used to be run by people with foresight and imagination. The changing tides may once again claim a mining industry scalp – this time a big one – but let’s hope something can be done.
Steve
Arrogance will always undermine any effort. It was just a matter of time. Besides, in todays environment companies need to be nimble and quick on their feet. There are a few of these old battleships still around… but their days are numbered.
jonboy3345
Brings back memories of a Carol King hit song….
Christopher Kuntz
Rather fascinating. I went to some operating mines in South Africa in the early 1990’s……..times were good. This isn’t just about South Africa though – BRICS will be hit hard……..and quite frankly all G20 countries will be affected. Maybe it is time for a global restructuring to keep wages, innovation, profits………all in line with global demand. Mining is cyclical – more than one person has commented on this.
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