Anglo American on Overcoming Adversity in a Struggling Market

In the midsts of a weak market, Anglo American is proving it has a strong chance of recovery in the next several years. With management looking towards a multiyear restructuring project to cut costs and boost returns by increasing efficiency, Anglo American has remained relevant, and a strong company in investors’ eyes.

Iron ore prices are weak, coal has been weak for several months, and the company’s platinum business has been hit with a major strike. However, the share price is within 10 percent of its 52-week high; the jump was caused by optimism regarding the long term potential of the current and future restructuring efforts.

The company is looking to achieve at least a 15 percent attributable return on capital employed by 2016, which will place Anglo American on sounder footing to deliver sustainable returns in the future.

As part of its restructuring plan, Anglo American is looking to reduce costs on a range of fronts, employ carefully phased expenditure on new projects, withdraw from some long-term future projects, and plan for exiting assets that cannot reach target returns.

Already, progress has been made in operational performances at Minas-Rio, a major project where the company’s new strategy is currently being implemented. Although this restructuring plan does not come without risks, this particular project remains on target to ship its first ore at the end of 2014, and within the expected capital budget.

Once the Minas-Rio project is completed, the company will have eased capital commitments and less pressure on free cash flow.

John Parker, chairman at Anglo American, commented that a large part of the continuing success of the restructuring plan deals with the relatively new members to the board of directors.

“I believe your current Board has the right mix of talent, with the appropriate bandwidth of skills and experience,” Parker said. “This extends beyond mining to encompass a range of fields, including major-project management, engineering, finance, healthcare, corporate leadership and global business experience.”

New members to the board include Jack Thompson, chairman of the Safety and Sustainable Development (S&SD) Committee; Byron Grote, Audit Committee; Dr Mphu Ramatlapeng, S&SD Committee; Jim Rutherford, S&SD Committee; and Judy Dlamini, director and member of the Audit Committee.