Disappointing results from world’s top miners highlight market challenges, Tickmill says

26th February 2024 By: Darren Parker - Creamer Media Contributing Editor Online

Disappointing results from world’s top miners highlight market challenges, Tickmill says

The underwhelming results from two of the largest global multinational mining and commodity companies Anglo American and Glencore, which both released their 2023 financial and preliminary results last week, underscore the formidable challenges facing the commodity mining industry, trading company Tickmill South Africa MD Roger Eskinazi has said.

“Anglo American's staggering 94% year-on-year decline in annual profit underscores the volatility inherent in commodity markets. [However], such drastic fluctuations are not uncommon in an industry heavily influenced by market forces,” he said.

He added that, for Glencore, the halving of earnings before interest, taxes, depreciation and amortisation, as expected, reflected a year marked by subdued economic activity, decreased manufacturing demand, and persistently low commodity prices, particularly in coal, natural gas and oil, despite a strong performance in 2022.

“The company's profit slump can be attributed to the combined effect of falling commodity prices and escalating input costs. This double whammy puts significant pressure on profitability margins, making it harder for companies like Anglo American to maintain steady financial performance,” Eskinazi said.

For Glencore, a decline in cobalt and zinc prices over the past year has also led to additional impairments, exacerbating the company's financial difficulties. The economic slowdown in China, a key market, has been a notable factor contributing to these challenges over the last 18 months.

In response to these difficulties, Glencore has taken decisive action, including a drastic reduction in dividends by more than 60%. This move shows the company's efforts to manage its finances prudently, particularly as it moves forward with a significant acquisition: the purchase of a 77% stake in Elk Valley Resources for $6.9-billion. 

This Elk Valley acquisition is strategically aimed at expanding Glencore's steel-making coal capacity by adding 20-million tonnes, with the transaction expected to be finalised by year-end. 

However, Anglo American took a different approach. The announcement of extensive job cuts and a review of contractor agreements at South African operations signals the group’s proactive approach to addressing its financial challenges. 

“Such measures are often necessary in times of economic uncertainty to streamline operations and improve efficiency,” Eskinazi said.

However, despite these efforts, Glencore's net debt has risen to $4.9-billion, approaching the lower maximum threshold. This suggests ongoing challenges in balancing the company's financial obligations with its strategic investments and operational performance. 

“Anglo American's substantial increase in net debt, soaring by 50% to $10.6-billion, underscores the financial strain the company is facing. Such a sharp rise in debt levels could potentially limit the company's flexibility and increase its vulnerability to market fluctuations,” Eskinazi noted.

He added that, while Glencore's preliminary numbers reflected a tough operating environment and the need for significant adjustments, the company's strategic moves, including the acquisition of Elk Valley, showed that the company was trying to navigate these challenges and position itself for future growth and stability. 

He said the outlook for Anglo American was no different. 

"The indication of further rationalisation efforts across the company reflect Anglo American's determination to navigate through the current economic headwinds. With commodity prices expected to remain under pressure amidst reduced demand and a sluggish global economy, prudent cost management will be crucial for the company's survival and future growth,” Eskinazi said.