It was not long ago that Anglo American was at the top of its game, raking in record profits and handing out lavish dividends of £4.9 billion.
The company, which was set up in South Africa during the First World War, played a defining role in creating the global mining industry in the 20th Century.
Its De Beers arm declared ‘A Diamond is Forever’ in 1947. The company later helped to develop Zambia’s copper belt.
But the FTSE 100 firm is now – at least from the City’s perspective – at best struggling and at worst in the throes of a crisis. The £24 billion company is being touted as a potential takeover target. Brokers at Jefferies say it could be attractive to rival Glencore.
Earlier this month, Anglo shocked investors when it made sweeping revisions to strategies across some of its most lucrative divisions. Billed as an update on ‘unlocking value’, its shares nosedived by more than a fifth on that day.
Mining analysts at brokerage Liberum later put out a note to clients, titled ‘Beyond the confusion and anger’. So what has gone so wrong?
Some of its problems are industry wide. Commodity prices have been falling after a stonking rally that occurred when the global economy reopened after Covid lockdowns.
This has dragged on the share prices of all the major miners, but Anglo has done worse than most.
Anglo, which needs to cut costs by £1.4 billion, said it would scale back its output of commodities such as iron ore and copper. These are lucrative areas for the firm, which also mines materials including palladium, gold and diamonds. Anglo will mothball a copper processing plant in Chile. In Peru its star new copper mine Quellaveco will produce less than expected in the short term because it is struggling with geological issues. Anglo’s iron ore production will be curtailed in South Africa due to problems with infrastructure and power supplies.
Jefferies analysts said: ‘The magnitude of production cuts is greater than expected – especially in copper.’
But investors are still optimistic, with many brokerages urging their clients to buy and some saying the sell-off that followed the disappointing announcement was overblown.
One contentious area of the business is the fertiliser mine, named Woodsmith, which Anglo is constructing in the North York Moors.
Anglo rescued Woodsmith in 2020 in a £405 million deal after its previous owner Sirius Minerals fell into financial difficulties.
Woodsmith is one area where Anglo is still committing ample funds. Some in the industry were sceptical about whether there was a market for the type of fertiliser it will produce.
If Anglo was a takeover target, would Woodsmith face the chop or act as a deterrent to potential buyers? No, says SP Angel’s head of research John Meyer. ‘It would definitely add to its value,’ he says. ‘Woodsmith is a relatively simple large-scale mining project.’
