Johannesburg - Anglo American’s profit more than doubled
in 2016 and with most commodities rebounding, it’s easy to guess why.
But the earnings surge has little to do with metals
prices.
Here’s why:
1. While the Bloomberg Commodities Spot Index rose 23
percent in 2016, prices for the raw materials that Anglo American produces
dropped 3 percent, after weighting for the company’s output.
2. Cost savings, rather than commodity prices or
production growth, were the biggest contributor to Anglo’s 25 percent rise in
earnings. Anglo’s “under-recognized work on the operational side of the
business is now really bearing fruit,” Paul Gait, an analyst at Sanford C.
Bernstein Ltd. in London, wrote in a note Monday.
3. Employees have been among the hardest hit by Anglo’s
cost cutting, with headcount falling by 67 000 from 2013 to 2016. About a third
of those workers left the company when Anglo sold the operations where they
worked.
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4. Even after offloading the paper mills, car factories
and newspapers of its past, CEO Mark Cutifani inherited a sprawling empire of
mining assets scattered across the world when he took the CEO role in 2013.
Cutifani’s closed and sold high-cost operations to create a more profitable,
focused business and said Feb. 21 he’s targeting more cuts to leave the company
with just 30 assets, without giving a timeframe.
5. An engineer by training, Cutifani has ensured
production didn’t suffer when costs were curbed. With volumes up 8 percent
since 2012, economies of scale mean that margins have increased even if
commodity prices didn’t.