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Anglo to focus on cost cutting following disappointing 2023 performance

22nd February 2024

By: Darren Parker

Creamer Media Contributing Editor Online

     

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Mining major Anglo American chairperson Stuart Chambers and CEO Duncan Wanblad have both expressed disappointment with the company’s financial results for 2023, which were released on February 22.

Chambers opened the presentation of the company’s results by candidly describing the company’s performance as "poor" owing to various factors including significant headwinds in platinum group metal (PGM) prices and diamond prices and volumes.

The company reported $32.5-billion in revenue for the year, a decrease of 13% year-on-year, and a 31% drop in earnings before interest, taxes, depreciation and amortisation to $10-billion.

“These results were dominated by the impact of lower commodity prices, especially in PGMs, diamonds and steel-making coal. PGMs and diamonds alone resulted in a $5.5-billion reduction in revenues,” CFO John Heasley pointed out.

Mining margins were also down by eight percentage points to 39%, while unit cost rose by 4%. Meanwhile, net debt went up 53% to $10.6-billion.

All of this resulted in a 52% decrease in total dividends to $0.96 and a 51% drop in earnings a share to $2.42. Return on capital employed also decreased by 14 percentage points to 16%.

“2023 was not the performance that I wanted. Much of that downturn was indeed driven by factors beyond our control, but that we can substantially step up our performance without relying on price recovery is an imperative,” Wanblad said, echoing Chambers' sentiments and emphasising the company's ability to enhance performance independently of market price fluctuations.

Wanblad highlighted the significance of a robust mine planning process as a fundamental driver of performance.

“Without a mine plan that works, it's very difficult to get the economic performance out of a business. And we have now set or reset the vast majority of those mine plans across the businesses to position them for pricing, operating and geotechnical realities that we face,” he said.

While acknowledging the transitional challenges associated with such changes, Wanblad expressed confidence in the company's ability to operate more effectively in the near term.

“This is an ongoing and dynamic process. And there is often a settling-in period of around 12 to 18 months when you transition from one plan to another, but I am confident that we now have that operating base in in which we will be much more fit for the circumstances that are likely to face the business in the near term,” he said.

Wanblad discussed significant organisational changes aimed at improving efficiency and accountability within the company. These changes included a bottom-up approach to refreshing the organisation, reducing costs of senior roles by 25%, enhancing governance structures and streamlining decision-making processes.

Despite acknowledging the difficulty of such decisions, particularly evident in recent announcements affecting operations in South Africa, Wanblad stressed their necessity in positioning the company for long-term competitiveness and sustainability.

Mining Weekly reported on February 19 that subsidiary Anglo American Platinum would be restructuring to curb costs in response to low PGM prices, affecting a potential 3 700 jobs in the process, while fellow subsidiary Kumba Iron Ore revealed a day later that it too would be shedding about 490 jobs in response to logistical challenges in South Africa.

“I am very mindful that the impact of these decisions comes across as very difficult for our teams. But they are absolutely essential for us to create a business that is more competitive, and can thrive over time to support all of our stakeholders. There's no point in a business that can only perform at the top of a cycle, but always struggles at the bottom of a cycle,” Wanblad said.

Further hurting Anglo American’s results was a $1.6-billion impairment of diamond mining subsidiary De Beers, attributed to lower gross domestic product growth forecast owing to macroeconomic uncertainty in key markets, the strength of the US dollar against other consumer currencies, as well as updated views on laboratory-grown diamonds and life of asset plans.

The company’s nickel business was also impaired by $800-million owing to changes in the long term cost profile, as well as a lower short and medium-term price outlook.

Looking ahead, he expressed optimism about Anglo American's future, citing its portfolio of world-class assets and leading market positions that he believed were aligned with three global megatrends, namely the energy transition, improving living standards, and food security. He reiterated confidence in the company's strategy and capabilities to navigate challenges and capitalise on long-term growth opportunities.

“Although the near-term environment will remain relatively challenging for us in parts, the long-term demand is really very bright, based on those three trends,” he said.

In terms of operational strategy, Wanblad emphasised the importance of stability and effective cost management as key margin levers.

“This is the foundation of absolutely everything else,” he said.

He highlighted efforts to enhance sustainable production plans prioritising value to drive margins and returns. Wanblad also noted the benefits emerging from the company's organisational redesign, which had streamlined decision-making processes and improved accountability closer to operations.

After cost management at an operational level, he said that improving the Anglo American portfolio was the next most crucial part of the plan.

“We will work towards having a simpler or a less complex portfolio, where every asset has a role to play. Each asset needs to be in the portfolio on its merit,” Wanblad explained.

Thirdly, over the longer term, he said the company would focus on delivering those attractive and highly value-accretive growth options that were already embedded within the portfolio.

Wanblad outlined plans to achieve $1-billion in yearly operational expenditure savings by the end of this year, with progress already under way.

Additionally, the company aims to extract $1.6-billion of capital from its operations over the next three years through more efficient deployment and a clear focus on growth opportunities aligned with the company's portfolio strategy.

“2023 was a challenging year, with market conditions significantly impacting profitability and cash generation. Our balance sheet strength has absorbed that. But we are clear that we will not rely on a recovery in PGM or diamond markets to improve our financial performance,” Heasley said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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