After massive losses last year, mining companies are implementing means to gain back share price.
Image: Anglo American Plc, Minas-Rio iron ore project
Anglos American shares dropped close to 6% across the last six month period to lows of 18013. Recently, the trend has reversed and shares currently stand at the 22224 mark.
Diversification and divesting are the methods that Anglo American is using to regain capitalization and restore profits.
Last week the London-based mining company released fourth quarter earnings under the title, ‘Significant operational improvements amid sharply lower commodity prices.’ Even so, results had negative annual figures across the board; underlying EBT down 25%, group revenue down 6%, underlying earnings per share down 17%.
However, Anglo’s approach to future operations are about adapting, like most global mining companies, to achieve delivery of higher and more consistent volumes, stating that new Minas-Rio project in Brazil is expected to be ‘$400 million below the revised budget.’ Mark Cutifani, Chief Executive of Anglo American, commented that “we have delivered a $500 million sustainable reduction in overhead and project study and evaluation costs compared to our 2012 baseline.” But despite the company’s project efficiency, Anglo still had to take a $3.5 billion write-down on Minas-Rio.
The most positive news from Anglo was the success of its diamond business: “The performance of our diamond business, De Beers, is a clear demonstration of the benefits and value of our diversified business model. The integration of De Beers into Anglo American is complete; De Beers contributed $1.4 billion of underlying EBIT in 2014, 28% of – and the second largest contributor to – the Group’s total, and delivered a 15% return on capital employed (ROCE).”
Sales in diamonds grew 4% in 2014 with expectations of a further 4% growth in 2015. This diversification is paying off as investors see a shining future in Anglo’s range of companies. Anglo America is also helped by slumps in specific currencies from Australia, South Africa and Colombia, where operations were able to benefit from a $1.3 billion contribution to earnings due to advantageous foreign exchange rates. This may continue as Anglo American plans production growth in South Africa by about five million tons in the next three to five years, and by a maximum of 10 million tons in Brazil by 2016.
Meanwhile, Anglo American have announced huge sell off plans in its Australian coal operations. For sale are a 51% stake in Dawson mine near Moura and a 70% stake in Foxleigh mine near Middlemount. These highly production mines should gain a heavy income to concentrate on the company’s core business portfolio. Callide mine in Queensland and Dartbrook mine in New South Wales are already being sold by Anglo.
It is the latest news from China on the slowdown in economic growth and housing that may deliver a blow to Anglo America’s iron ore division. As prices of the commodity dip to 5 and half year lows and Chinese iron ore developments start to come on line, the battle of global supply and demand starts to impact on miners that depend on the world’s second biggest iron ore consumer.
MT4 chart: ANGLO [Anglo American]
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