- Anglo American cuts 2024 and 2025 guidance
- Production drop will save $1.8bn over three years
Anglo American (AAL) chief executive Duncan Wanblad announced a new strategy to “unlock value” last week and managed to send the shares down 20 per cent. Given Anglo’s weak performance already this year, this took its year-to-date share price decline to a whopping 48 per cent, taking it into buyout territory according to some analysts.
Fellow mining majors Rio Tinto (RIO) and BHP (BHP) are down 6 per cent since the start of 2023.
The plan that caused the angst was to cut costs by reducing production next year. Across its entire portfolio, which spans copper, diamonds, platinum group metals, coal and iron ore, production will fall 4-5 per cent over the coming two years.
This will largely be at the South American copper mines, with significant output cut in order to save cash. Los Bronces and Collohuasi in Chile will see 22-29 per cent drops in 2024-25, while the new Quellaveco mine in Peru has had guidance cut by 15 per cent. RBC Capital Markets analyst Tyler Broda said Quellaveco had been a “bright spot in an otherwise currently challenged portfolio” and the lowered guidance had “removed near-term momentum and left investors frustrated”. The capex reduction over the next three years is forecast at $1.8bn (£1.4bn). Spending will continue on the Woodsmith fertiliser project in North Yorkshire.
Wanblad, now in the top job for 18 months, said it was a unique scenario where multiple divisions were hit by difficulties. “Many of [our mines] have been impacted by [a] very unique set of circumstances coming out of the Covid years and then some specific logistics and infrastructural issues,” he said.
The company’s market capitalisation is down to £23bn from £50bn when Wanblad replaced Mark Cutifani. Jefferies analysts said this could make it a takeover target by the likes of Glencore (GLEN). The mining and trading giant has been on the lookout for greater base metals assets after planning a split between its copper, cobalt and nickel mines and its coal operations.
The quirks of timing that have knocked several operations at once include a little-considered Covid impact. “Engagements, and therefore the purchase of engagement rings in the United States, are down… and that's because 2-3 years ago, when the people who would be getting engaged today should have been meeting for the first time, we had the Covid lockdowns,” said De Beers chief executive Al Cook. Lab-grown diamonds are also eating into the rough market, despite Cook repeating the mantra that diamonds not formed underground only count as costume jewellery.
More important for investors is the reasons behind the difficulties at Los Bronces and Quellaveco. The former has moved into a hard section (ie rock that is harder to crush) and will be in it for two years, when mining reaches softer, higher-grade ore reserves. At Quellaveco, the new mine in Peru, a geotechnical fault line means a new plan is needed. This has delayed 75,000 tonnes of copper production into 2027.
Liberum analyst Ben Davis said investors had tolerated diamond and platinum group metal weakness “to benefit from Anglo American’s copper story following the ramp-up of Quellaveco”. A hit to that potential meant the sell-off was significant. But Davis flagged the company holding onto its dividend policy of 40 per cent of headline earnings, and said Wanblad was right to continue spending big on Woodsmith, which is currently budgeted at around $1bn in capex.
