Several major mining companies made presentations to investors in the first 10 days of December, with an emphasis on what the companies are doing to cope during the current low commodity price environment and on how operating costs and capital expenditures are being reduced. Asset sales and shutdowns were at the top of the agenda for Anglo American, Freeport-McMoRan and Vale. Newmont focused on production expansions and cost reductions, while Glencore emphasized its debt reduction and capital preservation measures. BHP Billiton’s and Rio Tinto’s presentations centered on their copper and aluminum businesses, respectively, rather than on company-wide financial analyses.
Brief summaries of the individual company presentations follow:
Anglo American: Anglo American set out a radical restructuring program to redefine the focus of its asset portfolio and create a more resilient business to deliver sustainable shareholder returns. Key elements of the program include reductions in the number of operating assets from 55 to about 20 through sales, closures, or placement on care and maintenance. As a result, the company anticipates that its workforce will be reduced from 135,000 to less than 50,000.
Apart from placing the Snap Lake diamond mine in Canada on care and maintenance, closure of the Thabazimbi iron ore mine in South Africa, and sale of its phosphates and niobium assets, Anglo American did not list the assets it expects to remove from its operating portfolio.
Anglo American’s corporate structure will be reorganized into three operating businesses: De Beers; Industrial Metals, including base metals and platinum; and Bulk Commodities, including iron ore and coal. The company’s London headquarters will be co-located with De Beers in 2017.
Anglo American is targeting cost and productivity improvements of $1.1 billion in 2016 and $1 billion in 2017. Capital expenditures are expected to drop from about $4.1 billion in 2015 to about $2.5 billion in 2017. Dividends have been suspended for the second half of 2015 and all of 2016.
Freeport-McMoRan: Freeport-McMoRan announced new steps in response to market conditions in addition to those previously announced in late August. The new actions include a full shut-down of the company’s Sierrita copper mine in Arizona and adjustments to operating plans at its primary molybdenum mines.
With Sierrita added in, Freeport has announced production curtailments of approximately 350 million lb/y of copper and 34 million lb/y of molybdenum. The company will continue to evaluate its mining operating plans in response to market conditions and will make further adjustments as required.
It also is evaluating financing alternatives, the potential sale of minority interests in certain mining assets, and other actions to provide additional proceeds for debt reduction.
Vale: Vale President and CEO Murilo Ferreira said low commodity prices will likely continue to challenge the company in 2016. The unfavorable demand and supply outlook for iron ore will remain in place for a while, and Vale will focus on maintaining operational discipline and preservation of its balance sheet.
Vale sales of noncore assets in 2015 contributed $3 billion to its balance sheet, and the company anticipates that such sales could generate another $4 billion to $5.5 billion in 2016, when income from asset sales is expected to more than offset a potentially negative cash flow during the year. Vale expects to go cash-flow positive starting in 2017, while gradually reducing its debt and increasing its dividends.
Vale is forecasting its 2016 capital expenditures to come in at about $6.2 billion, down from about $10.2 billion in 2015. The company has been lowering its annual capital expenditures for several years, down from $16.3 billion in 2011 to $16.2 billion in 2012, $14.2 billion in 2013, and $12 billion in 2014. The company will continue to reduce its capital expenditures through 2018, when it estimates the annual total will be between $4 billion and $5 billion.
Vale is forecasting a 30% increase in its annual iron ore volumes to between 420 million and 440 million mt by 2018, while its cash costs and expenses for ore landed in China in 2018, adjusted for sale of pellets, are forecast to drop to below $25/dry metric ton (mt). Vale is forecasting that its production of iron ore pellets will increase from 49 million mt in 2015 to 55 million mt in 2019.
Newmont Mining: Newmont said its attributable annual gold production will increase from between 4.7 million and 5.1 million oz in 2015 to between 5.2 million and 5.7 million oz by 2017. Longer term, the company is forecasting steady and profitable production of 4.5 million to 5 million oz/y for the years 2018 through 2020.
An expansion at the Cripple Creek & Victor mine in Colorado and new production from the developing Merian mine in Suriname and Long Canyon Phase 1 mine in Nevada will more than offset Newmont production declines at Batu Hijau, Indonesia; Yanacocha, Peru; and Twin Creeks, Nevada.
Possible ramp-ups of projects that have not yet been approved offer the potential for adding 250,000 to 400,000 oz/y of gold to Newmont production beginning in 2018.
Newmont’s all-in sustaining costs (AISC) for gold production are expected to dip from between $900 and $960/oz in 2016 to between $850 and $950/oz in 2017. Longer term, Newmont expects to maintain its AISC below $1,000/oz through 2020.
As recently as 2012, Newmont’s gold AISC was at $1,177/oz.
Glencore: In an investor update on December 10, Glencore announced that it has increased its debt reduction/capital preservation measures to $13 billion from a previous target of $10.2 billion, with $8.7 billion already achieved. The company’s new net debt target is $18 billion to $19 billion by the end of 2016, down from a previous target in the low $20 billions.
Glencore also reported ongoing reductions in its capital spending, with current estimates of $5.7 billion for 2015 and $3.8 billion for 2016, down from earlier estimates of $6 billion and $5 billion for those periods, respectively.
Glencore said it will generate more than $2 billion of annual free cash flow at current spot commodity prices and that it will remain comfortably free cash flow positive even at materially lower prices.
The company is estimating its 2016 EBITDA at about $7.7 billion at current prices.
BHP Billiton: BHP Billiton President–Copper Daniel Malchuk said plans are in place to lower the company’s copper unit costs to $1.08/lb in its 2017 financial year (FY) to June 30, 2017, supporting strong cash margins even at today’s prices.
BHP Billiton’s copper assets include Escondida (57.5% interest) and Pampa Norte (100%) in Chile, Antamina (33.75%) in Peru, and Olympic Dam (100%) in Australia. Pampa Norte includes two mining operations, Spence and Cerro Colorado. The company is forecasting copper production of 1.7 million mt it its FY 2017, the same as in FY 2015, after dipping to a little more than 1.5 million mt in FY 2016.
Malchuk said, “At Escondida, no major investment is required to sustain an average 1.2 million mt/y of production capacity for the decade from FY 2016, and the asset is expected to generate strong free cash flow through the cycle. Olympic Dam unit costs are expected to fall 48% by the end of the FY 2017 to $1/lb, repositioning the asset at the low end of the cost curve. Over the same period, Spence unit costs are expected to fall 10% to $0.87/lb.
“Low-cost debottlenecking projects will release latent capacity, supporting sustainable production of approximately 200,000 mt/y at both Olympic Dam and Spence from FY 2016.”
Rio Tinto: Rio Tinto reported that its company-wide 2016 capital expenditures will total about $5 billion, approximately matching its 2015 expenditures. The company recently announced plans to develop its $1.9 billion Amrun bauxite project in Australia, with the majority of the capital expenditures scheduled for 2017 and 2018.
The Rio Tinto aluminum product group will also increase production in 2016, with anticipated increases in bauxite (up 4% to 45 million mt), alumina (up 3% to 8 million mt), and aluminum (up 10% to 3.6 million mt).
Rio Tinto continues to improve the cost position of its aluminum smelting business through portfolio rationalization, modernization and performance enhancements. The Kitimat smelter in Canada is ramping up following a $4.8 billion expansion and modernization program and will reach full production of 420,000 mt/y of aluminum ingot in 2016, positioning the company’s smelting capacity firmly in the industry’s first cost quartile.