Anglo halves business units, shelves divi, cuts 3 850 plat jobs

The share price of Anglo American fell by more than 9 percent on Tuesday after the diversified major set out radical portfolio restructuring, further material cost savings, more capital expenditure (capex) reductions, a reduction of the total number of employees to 50 000 and a retention of 20 to 25 assets from the current 50.

Anglo American Platinum (Amplats) shares fell by a similar percentage after the company said it was postponing investment in all growth and replacement projects and outlined its release of 3 850 employees.

Kumba Iron Ore said it was targeting unit costs of $30/t and a breakeven price of $40/t for 2016 to cope with badly deteriorating conditions in the global iron-ore market. Anglo American itself outlined that the severity of commodity price deterioration required bolder action, which would see 60 percent of its assets being sold or stalled.

“Any asset that’s cash negative will not remain in operation,” Anglo American CEO Mark Cutifani said in a media conference call from London, in which Creamer Media’s Mining Weekly Online participated. The dividend was being suspended and the progressive dividend concept abandoned completely as being inappropriate for cyclical companies.

The current six business units would be halved to three – De Beers for diamonds, industrial metals for base metals and platinum, and bulk commodities for coal and iron-ore. The commodities outlook for bulk was seen as being the worst of the three units with the outlook for diamonds the best and the outlook for industrial metals in the middle ground.

But together with the additional material capital, cost saving and productivity measures, the company was setting out an accelerated and more aggressive strategic restructuring of the portfolio to focus on assets that were best placed to deliver free cash flow through the cycle and that constituted the core long-term value proposition of Anglo American.

The company had categorised the assets to be retained as ‘priority one’ assets. In response to Mining Weekly Online’s request for a country outline of the company’s ‘priority one’ assets, only the Venetia diamond project in South Africa’s Limpopo province was divulged as being a ‘priority one’ mine, where there was no risk of the current R20-billion Venetia underground project being curtained.

The detail of the future portfolio would be set out in February, with the aim of delivering a resilient Anglo American and a step change in the company’s transformation.

“This will be a totally different looking company,” Cutifani told journalists, adding that it would be placed in a more competitive position to deliver sustainable shareholder returns.

Anglo American’s London office would co-locate with that of De Beers in 2017. In a drive towards operational discipline, cost and productivity improvements of $3.7-billion were being targeted from 2013 to 2017, of which $1.6-billion would be delivered by end 2015, $1.1-billion in 2016, and $1-billion in 2017.