ANGLO American has reduced capital expenditure across its operations by $200 million (R3.79 billion) after cutting production at Kumba Iron Ore and moving to only one plant at the Los Bronces copper mine in Chile as it pursues lower costs to survive tough market conditions and near-term constraints.
For 2023, Anglo American had capex of $5.8bn, a reduction of $200m compared to the previous year “due to prioritisation” of capital. By mid-next year, the company plans to reduce costs by a further $500m and an additional $500m by year-end 2024 on account of streamlined efficiencies.
The group said it continued to improve its cost performance and cash generation through the reconfiguration of operational assets. This was being implemented to “adjust the production profile to near-term constraints and market conditions, and thereby also protect longer-term value,” said CEO Duncan Wanblad.
“This includes reducing production at Kumba in line with prolonged logistics constraints, focusing on higher margin own-production through our PGMs processing facilities, and moving to one plant at the Los Bronces copper operation in Chile. As a result of such initiatives, we expect to deliver lower unit costs in 2024, despite high inflation, and $1.8bn lower capital expenditure in the 2023 to 2026 period,” he added.
This forced down Anglo American’s share price on the JSE on Friday by 13.3% to R455.68 to cap a tough week of bad news for the South African bourse. Earlier in the week, British American Tobacco said it was writing off R597bn from some of its cigarette brands
Wanblad said although the prospects for mined products had rarely looked better, continuing elevated macro volatility in the short term was forcing the company to be “deliberate in reducing costs and prioritising capital to drive more profitable production” on a sustainable basis.
In the year ahead, production across Anglo American was expected to decrease by 4%, while unit costs would also be lower by 2%, with cost discipline earmarked to offset inflation.
Although lower platinum group metal (PGM) metals prices had been problematic for the industry, Anglo American said it had some flexibility as Anglo American Platinum was “positioned in the first half of the margin” curve.
Wanblad, however, said current PGM prices, which have been forcing other South African producers such as Sibanye-Stillwater and Impala Platinum to institute lay-offs, reflect the aggressive consensus view on the rapid decline of internal combustion engines.
Nonetheless, hybrid vehicles were set to play a critical transition step to cleaner transport systems. More favourably for the PGM industry, hybrid vehicles “require similar levels of PGMs to internal combustion engines,” according to Wanblad, adding that “current market challenges are affecting” the supply side for the metals.
“Projects that were previously being discussed are being shelved, deferred and delayed because they are uneconomic at current prices.
“And longer term, we are seeing hydrogen accelerate faster than many were forecasting, which supports the outlook for platinum and iridium in particular.”
While De Beers was performing well, Anglo American said the diamond company was being affected by difficult market dynamics. Demand and prices for diamonds had “fallen as global GDP growth has fallen”, although the company was keeping faith that the current cycle would come to an end soon.
“All cycles end, and we believe that the current weakness is temporary. We are working to ensure we can supply to that demand increase as it comes. There are some signs that the market is beginning to turn,” Wanblad said.
However, a streamlining of De Beers had been necessary, with Anglo American reducing annual overheads at the diamond producer by $100m.
Capex for the upcoming year was also being reduced, with investment focused on the highest value opportunities in southern Africa from existing assets as well as on the exploration front.
De Beers would focus more on the ramp-up underground production from the Venetia mine in South Africa. It was also planning to move forward with the first phase of the Jwaneng underground mining in Botswana.
Anglo American reckons that long-term fundamentals for diamonds “are strong”, with the advantage being its access to some of the best diamond assets in the world. Moreover, De Beers was progressing with the renewal of its mining licences in Botswana towards a full agreement with the government early next year.
Although Kumba Iron Ore was performing well operationally, it had been afflicted by logistical issues. The company has been lowering production at Kumba in a bid to reduce costs in the last few weeks and to manage stockpiles.
As a result of this, Anglo American expects production to be lower, but will benefit from close to 2 million tonnes of stockpiled product.