CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
Diamond sorting in Kimberley, South Africa late 1800s. Source: Miningartifacts.org
On Tuesday Anglo-American announced a “radical portfolio restructuring“.
Radical indeed.
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, or almost two-thirds of its workforce.
That’s up significantly from the already eye-watering 53,000 positions the miner said in July it would cull.
London-listed Anglo – arguably the most diversified of the mining majors – also said its reducing the number of mines it operates from 55 to the “low 20s”.
CEO Mark Cutifani said 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.
With every major mining company disposing of “non-core assets” (read unprofitable mines in segments without upside) who’d want to touch nickel, coal and iron ore at this point in the cycle is an open question.
Reuters on Thursday had another look at Anglo’s plans in a cheekily titled piece called “Diamonds are forever; is Anglo American?” and found enough analysts to say Anglo isn’t doing enough to ride out the commodity slump:
“We are curious as to the likely fates of Minas Rio and Anglo American Platinum, given the supposed emphasis of the new strategy on cash generation,” Shore Capital analysts said.
“We had previously perceived Anglo as the most likely of the diversified majors to go bust. The company is clearly determined to try to survive or go down fighting, but we will have to reserve judgment as to which is likelier for the time being.”
“The balance sheet concerns are likely to remain until commodity prices improve or net debt is reduced,” UBS analysts said in a note. Anglo American Finance Director Rene Medori said the company was not planning to tap the market for cash as of now. But several people in the market felt otherwise.
“The downside risk to commodity prices is still significant, and further action, including an equity issuance, may still be necessary in 2016,” said Jefferies analysts, whose new 275p price target was lower than others.
Anglo ended Thursday at 319p in London. Down 15% since Monday and 73% year to date.
There’s more analysis at Reuters.
6 Comments
newsens
May not be dead but certainly on life-support.
TakisV
Perhaps the time has come for Anglo to show innovative leadership.
Instead of just looking from shareholder viewpoint, they must consider the stakeholders and the multiplier effect on communities.
Example:
1) Explore ways to absolutely minimize or avoid mine closures
2) Work on a zero base strategy of ‘freezing’ any dividends or ‘overall investor payback’ for a fixed period, eg a 3 years ICU period.
3) Negotiate with Government on zero taxes for the period and freezing of royalty payments during ICU
4) Reduce the size of Boards of directors and prune the superstructure to decentralized levels.
5) Impose a maximum ‘earnings package’ of 10x the lowest wage rate for All, including the CEO, for the ICU period. All salaries to be based on the local currency ‘equivalent value’ earnings.
6) Offer wage reductions instead of retrenchments to the Unions and salaried personnel for the ICU period.
7) Cyclical commodity optimism dictates that price of commodities will re-adjust.
8) Reduce ‘nice to haves’ benefits that may apply to ‘ego characters’.
9) Deploy an urgency rating methodology for all replacement capital (eg MAPI Analysis.
10) Negotiate with all suppliers and ‘ dollar based OEM’s for an ICU period special discount.
I believe the above will anger the political players, but will reduce the impact of unemployment on mining communities.
Good Luck from Africa….
Mining Industry Retiree
You could save millions by getting rid of Cutifani’s merry band of consultants he takes with him everywhere he goes that are value destroyers i.e. Mick McAlear. They reek havoc with no significant contributing benefit and Cutifani still drags them around with him. Go back to AngloGold Ashanti and see what they did there. The other issue is that these leaders like Cutifani and Tony O’Neil, Marcus Shamus, and the lot are old retreads, while technically they might know their craft, they are terrible leaders and are politicians which have found their way up the chain by going along to get along and riding on the shirt tails of others or political alignment/affiliations. When leaders behave like they do they are paralyzed to move decisively and cut through the politics and BS to get something done. Turning around an operation or a company is actually a capability and these guys have never done it ………but they do know the old tired method of selling assets and laying off people. Same old same old, blah blah blah blah blah. At least as a token of leadership Cutifani should work for a dollar since his stock package would benefit from his turning the company around and then he would demonstrate he had real skin in the game. Cutifani’s refusal to terminate an Executive VP in AGA nearly destroyed them. Yes, one poor EVP nearly brought the entire company down and they are still clawing their way out of the legacy that guy left behind as well as the effects from the gold price downturn. I know this sounds like I’m attacking the person but the majority of the problems in the mining industry is the leadership. It is an industry that has had tons of available capital and created people that are sloppy and wasteful and now in positions because they are politicians. They have little vision to plan and prepare for the cyclical nature of the commodities and they are an incestuous bunch that take their entourage around with them wherever they go creating the same problems they created at the last place they left. They are never around long enough to have the effects of their decisions stick to them. If the compensation committee’s of these companies had any balls they would tell the senior leaders (CEO,COO, EVP level) their compensation of stock payout would be deferred 5 years and compensated over a 5 year rolling average thereafter on the performance of the company. We know why this doesn’t happen because the boards of these companies are complicit.
Martin
Cutifani needs to accept there are no holy cows in his company. My proposal is to have the de beers diamond business sold off as a separate company with Anglo keeping perhaps a majority share. With the funds raised around us$5billion the existing debt load could be substantially reduced and the company in a much better position to ride out the commodity cycle. My concern is that nationalization is on the cards if the sa govt turn hostile with heavy labour layoffs and already programmed failure of Lonmin. Maybe the Chinese to the rescue to pick up cheap assets awaiting recovery of their economy
Restless Boomers
Anglo and others have certainly got bond and shareholders into a fix, but let’s understand that the current commodities rout is part of much bigger, thoroughly tested plan that works every time. It’s not about Mineral or Resource extraction, but Capital extraction.
Present bond and shareholder investments are first destroyed, paving the way for extremely wealthy families to come in and scoop up high quality assets and real value for pennies on the dollar. Each time this cycle plays out these families take another step up the ladder. Executives are of course rewarded with generous stock options, which they seem to have an uncanny ability to exercise at the very top, before the SHTF for everyone else. When enough chaos has been created, order is re-established, their New World Order.
Bond and equity holders, whether it be mining, energy, etc., better get it figured out that they are going to be skinned alive before thIs current cycle expires. Pensioners, widows and orphans dependent upon dividends and coupon clipping are in for a rough ride.
rayban
Vertical integration not decentralization . Decentralizing ops equals more hires equals more costs . All the rest of you all are a refreshing blast of clean air . Bully !
I would buy Oceana Gold , Platinum Group Metals , ICL LOL If , Denison Mines , Fission Uranium , Western Lithium and NIOBF . Some long some soon and reap the rewards . As well as you all stated , get the cutting done and move forward . Gentlemen I am in awe of ya .