The announcement comes in the wake of ongoing turmoil in the mining sector, a downgrading of the firm’s debt by Moodys and a 55% decline in pre-tax earnings that saw the group report a $5.6bn loss for the year to end December 2015.
The firm is slimming down to three core business units: copper, platinum group metals and diamonds, which it categorised as its most competitive assets, and has undertaken $3bn to $4bn worth of asset disposals over 2016. According to Cutifani it has already begun disposal processes for in nickel niobium and phosphates and metallurgical coal and also continues to make progress on its previously announced disposals of certain coal and platinum assets in South Africa and Australia.
Part of the reason for the disposals is an effort to reduce the diversified miner’s debt pile. According to Cutifani, the asset disposals, along with more than $1.9bn in cost and productivity business improvements are expected to reduce Anglo American’s net debt to below $10bn by the end of 2016.
In the medium term, the firm said, it is targeting net debt of less than $6bn and a net debt to EBITDA ratio of less than 2.5 times, which Cutifani said, supported “a return to a solid investment grade credit rating.”
But, perhaps the longer term goal is a view of where the commodities sector is headed.
“Anglo American will focus on competitive, long life assets with considerable organic growth opportunities that mine consumer-driven materials that are expected to benefit from long term growth trends as the global economy evolves and developing economies mature,” the firm said.
This focus, Cutifani added, “enhanced by commercial marketing expertise will also have the advantage of benefiting from the ongoing shift away from infrastructure investment towards consumer driven demand.”
It is worth noting that the move is in direct contrast to peers, Rio Tinto and BHP Billiton that have in effect ‘doubled down’ on their position in commodities like iron ore by raising production and, Cutifani hopes, will position the firm to deliver through the commodities cycle.
Restructuring
Copper will continue to be run by Duncan Wanblad, Platinum by Chris Griffith and De Beers by Philippe Mellier, while the now, non-core bulks division will remain led by Seamus French, with responsibility, Cutifani said: “for its Brazilian iron ore business and the non-core coal assets which will be managed for cash generation or disposal.”
The restructuring will also see the firm’s head count reduced significantly, from around 128,000 at the end of 2015, to around 50,000 core employees once all the disposals had been made.
However, Cutifani was quick to reassure investors that the firm would only complete transactions that deliver the right level of value for investors.
Adding that the firm’s positive free cash flow and robust liquidity position will allow it to take “the appropriate time to secure value outcomes”.
He added: “As the operational portfolio is streamlined, the organisation that supports it will be aligned from 11,500 roles today to fewer than 5,000 roles down by almost 60% with cost savings estimated at $250m per year.”
Shares in the miner fell over 5% in morning trade on the news.
