Facing the perfect storm of a commodities cycle bust, an unending logistics crisis, a subdued global economy and geopolitical tensions, mining giant Anglo American is undertaking a complete review of its assets — and nothing is off the table.
The company announced this week that profits fell by 94% in the year ended December as platinum group metals (PGMs) and diamond markets slumped and weaknesses at Transnet took a toll.
Group CEO Duncan Wanblad said at a results presentation they were “systematically” going through all assets to assess their fit in the portfolio.
Anglo impaired $1.6bn (about R30.8bn) at De Beers due to low diamond demand, and $500m at its Barro Alto nickel operation on faltering demand.
“Absolutely nothing is off the table in respect to that review. Every decision that we make here has to be based on a solid value case,” Wanblad said.
He said that while PGM and diamonds were now a drag on the company, both assets were revenue drivers during the pandemic, when they were at the top of their price cycle.
“To make any short-term decisions we have to be absolutely certain that there has been a structural change in those markets for us to want to do something drastic with those businesses. Under all circumstances we will review their place in the portfolio, their role in the portfolio, and the market that they exist in.”
The proposed job cuts were announced as the unemployment rate jumped to 32.1% in the fourth quarter of 2023 from 31.9% in the third quarter.
Wanblad said synthetic or lab-grown diamonds had created a structural change in the diamond market, and battery-powered electric vehicles had created a structural change in the PGM market.
In response to low prices, the group this week announced plans to lay off more than 4,000 employees, including 3,700 at Anglo American Platinum (Amplats) and 490 at its Kumba Iron Ore division, where production has been constrained by weaknesses at Transnet. The companies are consulting with organised labour in accordance with section 189 of the Labour Relations Act.
Anglo is also reviewing contracts with about 700 service providers, a move that will likely result in the merging of certain contracts, reducing the scope of others or terminating some.
The restructuring is the latest move by Anglo to become sustainable. In December, Amplats announced it would shave R10bn off its spending, including a R5bn reduction in capital expenditure and R5bn in cost savings.
Kumba said that due to the logistics crisis it was slowing production over the next three years to between 35Mt to 37Mt a year from planned production of between 37Mt to 39Mt in 2024, and 39Mt to 41Mt in 2025.
Amplats CEO Craig Miller said the restructuring was a necessary response to low metal prices and would support the future of the business and its remaining 18,000 jobs.
“I do not underestimate the significance of what this is. If we could have avoided it we certainly would have. But where commodity prices are at the moment we need to respond, and we do need to take action to support the business into the future”.
The proposed job cuts were announced as the unemployment rate jumped to 32.1% in the fourth quarter of 2023 from 31.9% in the third quarter.
However, Miller said tough action was needed as the outlook was murky. “It is the worst that I have experienced as CEO and being in the role for four months. This is a commodity cycle environment, and unfortunately for us the future outlook in the near to medium term is uncertain given what is going on at a global macroeconomic level and geopolitical tensions.”
Kumba CEO Mpumi Zikalala said appointing a permanent executive leadership was key to turning Transnet around. “I hope one of the things that the shareholder is looking at is the need for the appointment of a competent group CEO and the rest of the team, the CFO, and the CEO of Transnet Freight Rail, simply because the essence of getting the turnaround right will not just be good for Kumba but it will also be good for the country as a whole.”
Another PGM miner, Sibanye-Stillwater, said on Friday it has 'significantly reduced' the number of employees affected by the restructuring of its struggling operations while Northam Platinum announced it was deferring some of its capital projects due to lower prices. Earlier this week Sibanye warned that profit for the year ended December would fall by as much as 91% after a 32% average decline in prices.
Seleho Tsatsi, an investment analyst at Anchor Capital, said for the PGM industry the biggest challenge was the price environment.
“Rhodium and palladium in particular have dropped significantly. It seems like a long time ago now but 2021 and 2022 were record years for the industry. Now margins and earnings are under pressure and PGM mining companies are considering restructuring to adjust to this. Obviously this is not great news for an economy that is already dealing with quite sluggish growth,” he said.
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