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When energy executives say they expect prices will be “lower for longer,” they’re not talking only about oil. The slump affects the entire commodities industry.
The most recent victim is mining giant Anglo American Plc, which announced Tuesday that it is converting itself into much less of a giant through a severe restructuring program that will lay off 85,000 of its 135,000 employees, reduce its holdings from 55 mines and smelters to no more than 25 and reduce its business units from six to three in hopes of surviving until commodity prices regain their health.
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The company, so far the fifth-largest mining concern in the world, also said it would suspend its dividend for a year, a move that alone will save it about $1 billion. But news of the restructuring caused the value of its stock to fall immediately by 8 percent.
The cuts announced Tuesday are only the latest in Anglo American's restructuring program. “While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action,” Anglo American CEO Mark Cutifani said in a statement. It called its current plans “more radical” than previous efforts.
Cutifani said Anglo American would continue mining for diamonds, copper and bulk commodities such as coal, but gave few specifics. “We will set out the detail of the future portfolio in February, with the aim of delivering a resilient Anglo American and a step change in the transformation of the company,” his statement said.
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Anglo American and other mining companies had thrived until recent years in large part because of increased demand for their products, particularly from China, which estimated its economic growth at over 10 percent between 2000 and 2014. During this boom, China bought between 40 percent and 50 percent of the global supply of commodities.
But much of this growth was financed by debt, and the growth began to shrink as demand in China declined in the past year to around 7 percent.
“With few exceptions, the commodity price outlook remains dim, forcing miners to keep up their guard,” the London-based professional services company the PwC said in a recent report. “As the old saying goes, survival will be of the fittest, and for miners also the leanest.”
Anglo American certainly is making itself leaner, as are its fellow mining companies. There are worries that Anglo-Swiss Glencore Plc won’t be able to cover its current debt burden because of low commodities prices, and its stock dropped 9 percent on Tuesday. The same goes for Anglo-Australian BHP Billiton, whose shares dropped 6 percent and Chile’s Antofagasta, whose stock dropped 5 percent.
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Cutifani has been Anglo American’s CEO since only 2013, and his tenure has been trying. He once stated that not one of the company’s products had risen in price during any month of his tenure. Against that backdrop, he sold the corporate jet, signaling an end to the company’s lavish spending.
Anglo American will slash operating costs during the next 12 months by $1.1 billion and at the same time reduce capital spending by an additional $1 billion. Cutifani said part of that effort, perhaps also symbolic, will be to shutter its headquarters in London and move into the offices of its diamond-mining subsidiary, De Beers.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com