On Tuesday, the mining giant Anglo American announced a drastic drop in its business, cutting 60 percent of jobs, selling off a big chunk of assets, and discontinuing mining of commodities like nickel.
Anglo American’s restructure is in a bid to increase free cash flow, reduce debt and better prepare the company for a future where China is not building a new city every month.
Here are the main points from Anglo’s restructure:
- Cutting primary assets from 45 to 16, focusing on diamond business De Beers, platinum group metals, and Copper;
- Selling $5-6 billion of assets by the end of 2016. More than $2 billion were sold in 2015;
- Cutting $1.2 billion worth of costs this year;
- A $3 billion reduction in capital expenditure this year and a further $500 million cut in the next year;
- Reducing staff from 11,500 to 5,000, mainly due to the sell-off of assets.
According to Anglo American, these changes are needed due to market shift, and the biggest shift is:
“…the next phase of growth in China, which is seeing the evolution away from bulk commodity intensive infrastructure development to increasing demand for base and precious metals for homes, vehicles, household appliances and electronics, as well as for luxury goods such as diamond and platinum jewelry.”
China has been planning to shift its economy from one of production and manufacturing towards a consumer-based economy. For this, China has brought-the-once-in-a-lifetime building boom that the country experienced throughout the 2000s to an end.
In last ten years, China hoovered up a mainstream of metals and other resources drained out across the world. Its slowing growth is now leaving a demand shortfall which has led to a fall in the price of many metals. It has affected mining companies badly, with Anglo American’s share price down over 70 percent since May 2015.
The sweeping restructure of Anglo’s business came as it announced its preliminary results for 2015. Here are the main points:
- Earnings before interest or tax: $2.2 billion, down 55% on 2014;
- Revenue: $23 billion, down 26% on 2014;
- Loss before tax: $5.4 billion, from $259 million in 2014.
Despite the collapse in revenue and profits, Anglo Americans shares popped 6 percent in London and are now up 2.2 percent. Investors are keen on the cost-cutting drive.
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