Anglo American recently announced detailed and wide-ranging measures that it said will sustainably improve cash flows and materially reduce net debt, while focusing the group on its core portfolio of 16 world-class diamond, platinum group metals (PGMs) and copper assets.
The company is jettisoning noncore assets. Anglo said the disposal process for its nickel, niobium and phosphate, and Moranbah and Grosvenor metallurgical coal assets is under way. It also reported further progress on other previously announced sales, including platinum and thermal and metallurgical coal operations in South Africa and Australia.
Financially, the moves should enhance cash flow and strengthen the balance sheet. An optimization plan showed $1.9 billion of cost and productivity improvements in 2016, and those are expected to continue into 2017 and beyond as the organization is further streamlined. The company reported a cost reduction of 50% ($250 million) for central and global support in the medium term. Total capex has been reduced by 25% year-on-year to less than $3 billion in 2016.
“We are taking decisive action to sustainably improve our cash flows and materially reduce net debt, while focusing on our most competitive assets,” said Mark Cutifani, CEO, Anglo American. “As a result, we are targeting net debt of less than $10 billion in 2016, assuming current commodity prices and exchange rates. In the medium term, we are targeting net debt of $6 billion, supporting a return to a solid investment grade credit rating.”
“We, of course, recognize the current challenging environment in which to deliver disposals. We are already engaged with parties interested in several of our assets, but we will only complete those transactions that deliver appropriate value for our investors. So, while we have accelerated our disposal processes, and given our targeted positive free cash flow and our robust liquidity position, we will take appropriate time to secure value outcomes from the disposal program.
“We will focus our portfolio on our global leadership positions in diamonds and platinum group metals and our world-class position in copper. This unique combination of assets, enhanced by our commercial marketing expertise, will have the advantage of benefiting from the ongoing shift away from infrastructure investment toward consumer-driven demand, positioning Anglo American for these expanding markets. We will manage our other assets, in bulk commodities and other minerals, for cash generation or disposal over time.”
Anglo American holds an 85% interest in De Beers, the world’s leading diamond company, which currently produces about a third of the world’s rough diamonds by value. De Beers will continue its mining operations across Botswana (Jwaneng and the Orapa complex), Canada (Victor), Namibia, and South Africa (Venetia and Voorspoed). Within its operating portfolio, De Beers has one of the largest diamond resources by volume in the world at Orapa and one of the richest diamond mines, by value, at Jwaneng. De Beers is also due to complete the development of the 51% owned Gahcho Kué mine in Canada, with production expected to begin in the second half of 2016, while progressing the underground development at the Venetia mine.
The company’s interests in PGMs are held through its 78% owned subsidiary, Anglo American Platinum (Amplats), the world’s leading PGM producer with positions in the world’s two largest PGM deposits — the Bushveld Complex in South Africa and the Great Dyke in Zimbabwe. In 2015, these assets had a combined production of 1.3 million ounces of platinum (metal in concentrate).
Anglo American has concentrated its copper business around its interests in two of the world’s largest copper mines, Los Bronces (including the Chagres smelter) and Collahuasi in Chile. In 2015, Los Bronces, a 50.1% owned subsidiary, produced 401,700 metric tons (mt) of copper. Collahuasi, 44% owned, produced 455,300 mt of copper (200,300 mt on an attributable basis). On average, the two assets operate at cash costs of $1.45/lb, with reserve lives of 25 years and 70 years, respectively.