Weak Metal Prices Hit Anglo American's ROI
Anglo American Plc said persisting weakness in metals prices could limit its growth and return on capital, curbing expectations on the results achievable by a revamp plan under way.
After years lagging its peers, Anglo American's boss Mark Cutifani vowed to turn the business around by slashing costs, improving mine operations and selling underperforming assets.
Cutifani has said its plan would boost return on capital employed (ROCE), a measure of the value a company gets out of its assets, to at least 15 percent by 2016, from 11 percent last year.
But this is only achievable based on commodity prices as of June 2013, the company said.
Taking into account market consensus on prices for 2016, the company will be able to achieve ROCE of 12 percent, it said.
Most metal prices tumbled last year. Iron ore, the top earner for Anglo American, has lost around 40 percent of its value since then.
The company also cut its capital spending plan for 2014 and 2015 by $500 million-$800 million in 2014 and by up to $1 billion, respectively.
Anglo's Kumba Iron Ore said in a statement it was slashing costs by reviewing its operations and cutting jobs, as softer prices for the steel-making ingredient took their toll.
The price of iron ore has lost about 50 percent this year, partly due to concerns over slow economic growth in China, the largest importer of the commodity.
Cutifani said Kumba would have a smaller headcount at its Pretoria head office and that Kumba boss Norman Mbazima was faced with the challenge of cutting costs to below inflation levels.
"Norman conducted a meeting a few days ago to inform staff of our intention to reduce the size of our Pretoria head office ... we are talking about a material change in our head-office structure," Cutifani said in a call with journalists ahead of the company's investor day.
Meanwhile, Anglo American Platinum said the sale of its Rustenburg and Union mines was under way following a record five-month strike, with the company focusing on more mechanised operations.
Cutifani said Anglo American units with operations in South Africa, including Amplats, Kumba and Anglo Coal, aimed to cut costs over the next year by 6 to 7 percent.
