Silvia Antonioli London
Anglo American was planning to cut between 5 percent and 20 percent of staff at head offices around the world, sources close to the matter said, in an effort to keep shareholders on side and respond to a commodity price rout that had hit profits.
The mining company employs some 151 200 staff globally. It will probably announce the cutbacks, which could affect thousands of employees, in its first-half results on July 24, they said.
“I can confirm that at group level there are major job cuts brewing,” one source close to the company said.
A second source said: “They are considering a headcount cut of about 20 percent at group level and further restructuring through all divisions.”
Anglo American declined to comment.
The potential job cuts show how Anglo American chief executive Mark Cutifani is having to step up restructuring efforts that began more than a year ago as some investors are concerned that the plan has run out of steam.
Cutifani has been trying to improve mining operations and sell less profitable assets to overhaul the group, which has lagged mining industry rivals for much of the past decade.
But the plans have coincided with falls in prices of metals such as iron ore and copper, which make up almost half and about a quarter of its earnings respectively.
Some shareholders are starting to lose patience.
“It’s clearly a critical juncture for Anglo American. The interim results are going to be important for us to make the call on our Anglo investment, as well as investment in the broader sector,” said Investec fund manager Hanre Rossouw, a shareholder in Anglo American and in its subsidiary Anglo American Platinum (Amplats).
“Mark has correctly focused on improving operational performance as this has been lagging. He now needs to address more strategic matters including the group structure and the sustainability of the balance sheet and dividend, certainly some uncomfortable decisions that need to be taken soon.”
Initial optimism among investors about Cutifani’s plans have helped Anglo’s shares to catch up with its rivals in 2014.
But the restructuring, which includes sales of non-core assets, such as copper mines in Chile and coal mines in Australia, has moved slowly and Anglo’s share price performance has begun to lag its peers.
The decline in the price of most of the commodities the group produces has also meant that Anglo has slipped further away from its profitability targets. Its return on equity stood at a negative 13.5 percent at the end of 2014, against Glencore’s 1.2 percent, Rio Tinto’s 4.5 percent and BHP Billiton’s 5.4 percent.
After years of high spending and costly project delays, the company has delivered some promised improvements, including starting production at its Minas Rio iron ore project in Brasil.
But Anglo has been slow to tackle its troubled platinum division, hit by strikes and shrinking profits, while the sale of some copper and coal assets to raise cash and cut debt is also dragging on for longer than expected.
“A sense of urgency seems to be lacking. More of that would be desirable… You can’t hang on to something forever when everybody knows it’s an unwanted asset,” said Ian Woodley, a portfolio manager at Old Mutual, a shareholder in Anglo American and Amplats. “They are quite good at promises. Delivery tends to be slower.”
The investor community has been waiting to see whether the company can successfully dispose of its ageing and costly Union and Rustenburg platinum mines, viewed as an important hurdle for Cutifani.
There is increasing scepticism about whether the company can shed the platinum mines quickly either via a sale or a listing given a gloomy outlook for platinum and shaky investor confidence in South Africa’s mining sector because of rising energy costs, labour disputes and government interference.
Barclays analysts said Anglo had a less than 50 percent chance of divesting the mines.
With platinum prices down roughly 30 percent in the last year, iron ore down more than a third and even diamond prices now falling, the company is under a lot of pressure.
“They are quite in a pickle. Their numbers don’t stack up,” one banking source said. “The picture as currently presented is not sustainable. Something has got to give: either commodities prices come up or they’ll have to cut investment, jobs or their dividend.”
In a worst case scenario, Anglo could be vulnerable to a predator.
– Reuters