Anglo eyes R20bn in annual cost savings

Sikonathi Mantshantsha - Diversified miner Anglo American says it's looking to cut about R20 billion in annual costs in order to get itself through some potentially lean years.

Much of the cost cutting will come in the form of job losses in its South African platinum and iron ore miners, the group said last week.

The group will also lower capital expenditure by US$1.6 billion (about R30 billion) over the next three years, while cutting unprofitable volumes. This compares to US$5.7 billion of capital expenditure in 2023, the same for the previous year.

The majority of the cost curtailment will be in subsidiaries Anglo American Platinum (Amplats) and Kumba Iron Ore, where almost 5 000 jobs could be lost.

In addition, Anglo American has also announced a US$1.6 billion impairment of diamond producer De Beers. This would leave De Beers with a carrying value of about US$7 billion.



Cash top priority

"I am determined to make Anglo American a good investment all round," CEO Duncan Wanblad said in an investor call on Thursday, adding: “The company can't just be a good asset at the top of the market and struggle at the bottom. We are strengthening our business to deliver excellent, repeatable performance.”

Wanblad said the top priority for the management team was to improve the cash performance of the business, without compromising operational safety.

"I believe that we have already made very substantial progress, but we are far from done here. There will be more reforms. We will assess the role of every asset in the portfolio," he said.

Wanblad said Anglo American is "taking clear and decisive action to reduce costs. Each and every one of Anglo American's businesses must play its role in the portfolio. For it to be in the portfolio or for it not to be in the portfolio, every asset will have a specific role to play and must justify its place. Nothing is off the table."



Tough year

The management of Anglo American says it is not happy with the performance of the group last year.

"2023 was not the performance I wanted," said Wanblad, adding: “It is absolutely paramount to restore positive momentum and recovery to each business. These numbers should have been much better.”

Anglo reported a 13% decline in revenue to about US$30 billion in the year ended December. The group's basket price of its diversified commodities also dropped 13%.

These include the platinum group metals produced by Amplats, iron ore as produced by Kumba and Brazil's Minas-Rio, copper and nickel from its Quellaveco mine in Chile and Peru and the diamonds mined by De Beers, among others.

Unit costs, on the other hand, were 4% higher and net debt rose to US$10.6 billion from US$6.9 billion in 2022.

Said Wanblad: “It is therefore with a really heavy heart that we take this decision to reduce the size of these businesses. We know what impact it will have on the livelihoods.”



Jobs

This week Amplats announced it had entered into a Section 189A process in which it would consult its labour over the possibility of 4 000 direct jobs being lost.

Kumba, on the other hand, said it would enter into a similar process that may result in 490 direct jobs being cut.

In addition, both companies said they would review the contracts of almost 800 supplier companies with a review to reducing the scope and terminate others, which will likely add to the loss to the economy.

"Anglo has had to take some very tough decisions with regards to Kumba Iron Ore and Anglo American Platinum in South Africa. These are really tough decisions for the team, but they absolutely must be done," said Wanblad.

Anglo American sustained a direct revenue hit of US$5.5 billion from platinum group metals and diamonds last year, as a result of the lower market prices, said John Heasly, Anglo American's finance director.

Overall, sustainable cost reduction initiatives in PGMs will deliver annual cost savings of US$300 million from a 2023 baseline, and in 2024, the business is targeting an all-in-sustaining cost of US$1 050 per ounce, it said.



De Beers

While singing the praises of De Beers, Wanblad said diamond prices were depressed and that a lower global GDP growth forecast made for uncertain demand.

"De Beers is currently very strong. There is no doubt about it," said Wanblad. "But the current demand levels are just too low, and it is going to take some time to get back to those levels we have targeted."

According to Wanblad, even with its current structural problems in South Africa, where it is struggling to ship its iron ore to the market due to the railway crisis that has increased stockpiles at its mines, Kumba remains the single largest value contributor to the group's portfolio.

He said two years ago, the PGMs from Amplats contributed US$7 billion more than they are currently able to at the lower PGM prices, which have dropped by between 14% and 60% over the past two years.



Assets

Anglo American is not all about cutting, though.

The group is lining up assets for acquisitions and combination of adjacent mines to its existing portfolio, such as it did with the acquisition of Brazil's Serpentino from Vale SA.

"Growth is the third in the list of our priorities," said Wanblad. "We have more of these adjacencies in the portfolio, like Serpentina was an adjacency, we are looking at more of that we will announce in the future."

Pressed for timelines, Wanblad said the group would not rush to conclude any deals as it prefers to follow a thorough process that must immediately add value for shareholders, adding: “I am a Plan A and Plan B type of guy. Serpentino took three years to conclude.”

He did add, however, that Anglo American was "progressing on a well thought out pipeline of copper assets." – Fin24