JOHANNESBURG (miningweekly.com) – Anglo American would deliver a cut of nearly $200-million out of the capital expenditure (capex) programme of Anglo American Platinum (Amplats) by year-end and lop $1.5-billion off 2012 group capex, Anglo CEO Cynthia Carroll said on Friday.
The downward revision of the previously guided capex would be from $7-billion to $5.5-billion and on platinum, Carroll said: “We’ll go beyond our capital reduction target for platinum and deliver a cut of almost $200-million by the end of the year.”
In addition to the $1.5-billion group cut for 2012, $200-million less would also be spent on exploration and early study development this year.
“For 2013, we’ve set a capex funding target of $6-billion and the 2013 funding target for exploration and early studies will be $600-million, down a further $300-million on 2012,” Carroll added.
There was “no silver bullet” as far as platinum was concerned and the group’s platinum review process would not be rushed.
Platinum’s current 11% profit margin, though in line with the current industry norm, was unacceptable for the medium to long term, and Amplats was working through the review to assess the optimal configuration of the portfolio.
This would take time and it would not be easy. In the light of the current volatile environment, discipline was paramount.
At a group level, Anglo would also be disciplined and strike the right balance in allocating capital.
The group would sequence investment in line with its funding capacity and focus on the most value-accretive options.
“We’re responding to tough times, but let there be no doubt in anyone’s mind that we’re well positioned to get through them in strong shape,” Carroll said, after announcing a 38% lower $3.7-billion group operating profit for the six months to June 30.
Macquarie First South Securities mining head Kieran Daly asked when and how Anglo would inform the market of the results of the platinum review - would it be at year-end, or during next year’s results presentation or at the end of the year.
A persistent Daly also wanted to know whether the company had taken decisions on any of the joint venture (JV) assets in view of platinum junior Atlatsa, formerly Anooraq, saying it was comfortable with its Bokoni mine in the Amplats stable, and whether government and labour were included in the review process, to give the review's decisions a realistic chance of implementation.
Carroll’s response was that Amplats platinum portfolio, with 12 operating mines, seven JVs, 58 000 employees and 580 000 dependents, was complex and massive and would not be done independently.
“We will look at the entire value chain, from resources to mining to processes sales and marketing and people, and no option is off the table, and we will retain platinum as a part of Anglo American as a starting point," Carroll reiterated.
New CEO Chris Griffith would implement the review decisions from September 1 and 60 000 oz of high-cost platinum had already been taken out of the system and the study into high-cost ounces was ongoing.
The key objective was to thoroughly access the options available to establish a long-term portfolio with sustainable competitive advantages that would maximise value.
There was no doubt that the global economic environment had deteriorated, driven by the commodity prices in the Eurozone and there was continuing uncertainty over the sustainability of the US economic recovery.
China’s slowdown in growth rate was also contributing to the contributing to the gradual short-term outlook.
But in the longer term, Anglo continued to see resilient commodity demand, driven by rising living standards in emerging countries like China and India and infrastructure replacement in developed countries.
If current trends were sustained, by 2025 cities around the world would build the equivalent of the landmass of Austria in residential and commercial floorspace and this would require cumulative investment totalling some $80-trillion.
As development in emerging countries shifted over time from investment to consumption, growth rates in steel demand should moderate and the expanding middle classes in many emerging countries should boost consumption of platinum and diamonds as that transition occurs.
One billion people were forecast to enter the consuming classes by 2025 and Anglo’s diversified and balanced portfolio positioned the company well to take advantage of the structural changes in the global economy.
What was happening on supply was just as important. Supply constraints as well as difficulties producers faced to deliver that supply would underpin prices.
Projects were facing significant delays as a result of increasingly complex planning and permitting regimes.
Developing and developed countries alike were seeking a larger slice of the mining cake, whether it was through JVs with mining companies, windfall taxes, increased royalties and in some cases mining-asset expropriation.
Remaining resources were located in places difficult to access and which had under-developed or non-existent infrastructure.
At the same time, mining itself was becoming more difficult, more challenging with existing operations facing grade declines and higher waste stripping.
In an industry that thought in decades rather than years, capital allocation and balance sheet management required discipline and sound judgement.
Anglo had invested in the right commodities and the right high-quality and low-cost assets at the right time and the company still had “the best pipeline of growth options in the industry”.
Anglo increased its dividend by 14% despite 46% lower earnings at $1.7-billion and the company was determined to maintain and build on that new base through the cycle.
The company recognised that future cash flows would be impacted by both economic uncertainty and higher operating and capital costs and to maintain its investment rating and dividend to shareholders, it would sequence investments to take advantage of all stages of development in emerging countries.