Anglo's Drastic Share Price Decline
Anglo's CEO Duncan Wanblad's announcement of a strategy to cut costs by reducing production has resulted in a 20% drop in shares, contributing to a total year-to-date decline of 48%. This stark contrast is evident when compared to other mining majors like Rio Tinto and BHP, which are down only 6% since the start of 2023. This decline has brought Anglo into potential buyout territory, as per some analysts.
Production Cuts Across Portfolio
The strategy involves a 4-5% reduction in production over the next two years across various commodities. Significant cuts are planned in South American copper mines, notably Los Bronces and Collohuasi in Chile, and the Quellaveco mine in Peru. This move is expected to save cash but has led to investor frustration due to lowered momentum, especially at Quellaveco, previously seen as a portfolio highlight.
Capex Reduction and Continued Investment
Anglo plans to reduce capital expenditure by $1.8 billion over three years, yet it will maintain investment in the Woodsmith fertilizer project in North Yorkshire. Despite facing unique challenges post-Covid and specific logistical issues, CEO Wanblad remains committed to this strategic direction.
Market Capitalization and Takeover Potential
Anglo's market capitalization has halved since Wanblad took over, sparking speculation about a potential takeover, possibly by Glencore, which is seeking to expand its base metals assets.
Impact of Covid and Market Factors
Unusual Covid-related impacts, such as a decline in engagement ring purchases in the U.S., and the rise of lab-grown diamonds, have also affected the company. At Los Bronces, difficulties in mining hard rock sections have emerged, while a geotechnical fault line at Quellaveco necessitates a revised plan, delaying copper production.
Investor Perspective and Dividend Policy
While investors have been tolerant of weaknesses in certain segments, the copper story, particularly the ramp-up of Quellaveco, was a key attraction. Analyst Ben Davis suggests that the current sell-off is significant but acknowledges the company's commitment to maintaining its dividend policy and the importance of continued investment in the Woodsmith project.
