Anglo American, the FTSE listed commodities giant, is in serious trouble, and is being forced to undertake what it calls a “radical” restructuring of its business to try and weather the commodity crash storm.
The company unveiled a whole raft of changes to its business on Tuesday morning, and isn’t lying when it says they will be “radical.”
The news of the changes came just one hour after another mining giant announced it is being forced into action to fight the commodity slump. British-Australian firm Rio Tinto, revealed that it needs to cut capital expenditure over the coming years.
For Anglo American, there are so many changes and cost cuts being put in place that it’s pretty hard to keep up, but these are the most important:
- The world’s largest platinum miner is going to undertake a programme to dump roughly 60% of its total assets. In 2014, the company reported having total assets of around £44 billion ($91 billion) so the consolidation could remove as much as £26.7 billion ($55.58 billion) from Anglo’s balance sheet.
- Anglo won’t pay shareholders a dividend in 2015 or 2016, something that had been widely predicted. In November, an analyst note from HSBC quoted by the Financial Times suggested that Anglo could save around £730 million ($1.5 billion) by suspending its dividend.
- It will cut costs by £2.47 billion ($3.7 billion) by the end of 2017. The cuts will come in three chunks; £1.1 billion ($2.3 billion) this year, £730 million ($1.1 billion) in 2016, and a final £670 million ($1 billion) in 2017.
- Anglo will dispose of certain parts of its business, including its phosphate and niobium mining operations, hoping to raise around £2.7 billion ($5.6 billion).
- The company’s six businesses will be consolidated into just three; De Beers, the diamond mining arm, Industrial Metals, and Bulk Commodities.
- De Beers’ and Anglo American’s London office will merge in 2017.
Anglo American was already in the process of some restructuring, but says the new changes are part of a plan “to transform the Company’s competitive position and create a more resilient business to deliver sustainable shareholder returns.”
Speaking about the changes, the company’s CEO Mark Cutifani said: “While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action. We will set out the detail of the future portfolio in February.”
Essentially, Anglo is admitting that it is struggling to cope with the monumental slump in commodity prices. It is well known that the price of pretty much every commodity has tanked over the past few years. Bloomberg’s all commodities index is down more than 50% since 2011, and as recently as last week iron ore hit its lowest level in 10 years.
Anglo’s results reflect how much it is struggling right now. It recently reported that earnings were down 36% for the six months to June, compared with the same period in 2014. It was also forced to slash production for several of its commodities in October.
Investors are worried
Unsurprisingly investors in Anglo are pretty worried about the company almost completely restructuring itself virtually overnight, and shares are tanking. The company’s stock hit an all-time low on Monday afternoon, but things have gotten even worse on Tuesday morning. Shares fell by more than 9% in early trade, and while they have recovered a bit, losses are still around 5.5% so far.
Things may be bad for Anglo American, but at least it’s not alone. The miner has become just one of a series of big commodity firms to take dramatic action to try and stave off the affects of the crash.
Earlier on Tuesday, Rio Tinto announced it will cut capital expenditure by more than 10% to $5 billion in 2016, while in November, platinum producer Lonmin sold off billions of shares at a penny each to try and stave off total financial collapse.
Both companies followed on from the huge troubles Glencore has been facing. At one point in September, the company’s shares lost nearly 50% over the course of a couple of days, and boss Ivan Glasenberg told reporters that he was preparing for “Armageddon.”