Anglo American to slash production as falling prices hit miner's profits

By Louis Goss

Anglo American on Friday outlined plans to drastically reduce its mining output between now and 2026 with a view to saving $1.8 billion in costs as plunging commodity prices have eaten into its profits.

The plans will see the mining giant slash production of diamonds and platinum group metals (PGMs) and scale back its copper and iron ore mines in Chile and South Africa that have been plagued by rising costs and operational issues.

Shares in Anglo American (UK:AAL) fell 5% on Friday having lost 35% of their value over the previous 12 months.

"Whilst it is clearly not positive that Anglo has come to this situation where it needs to shrink its footprint, we think this new streamlined Anglo American should allow it to shed some of the recently more challenging aspects of the business and addressing this proactively should help the company emerge in a stronger position for the coming years," RBC analysts led by Tyler Broda said

The miner's cost-cutting plans will see it cut production at its huge Kumba iron ore mine in South Africa and reduce its operations to just a single plant at its 156-year-old Los Bronces Copper mine in Chile by closing the older of its two facilities at the site.

The cuts will see Anglo American slash its production by 7% over the next two years, with the sharpest reductions in its output of copper.

Anglo American's production cuts come as falling commodity prices have eroded the mining firm's earnings, in a shift that has seen its profits drop 41% over the past year, from $8.7 billion in the first half of 2022 to $5.1 billion in the first half of 2023.

The drop in commodity prices saw underlying earnings from Anglo American's diamonds business drop 63% and underlying earnings from the mining firm's PGMs division - covering palladium, iridium, and platinum - fall 76%.

Inflation and operational issues also saw Anglo American's unit costs increase by 3% in the first half of 2023, as a combination of high water prices and problems with its facilities at its Los Bronces mine saw costs inside its Chilean business increase by 42%.

Anglo American also noted that problems inside South Africa's state-owned rail company Transnet have limited its abilities at Kumba leaving it with unsold stock.

The FTSE 100 mining firm noted that it will still take time for conditions to improve, despite the South African government's decision to give Transet a $2.5 billion bailout on Dec. 1.

The British mining company noted that its plans announced in October to reduce its costs by $500 million, by cutting hundreds of jobs at its London and Johannesburg headquarters, are already "well advanced" and are currently on track to be completed by mid-2024.

-Louis Goss

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12-08-23 0609ET

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