Anglo review likely to call for cutbacks in jobs, spending
December 17, 2008
By Justin Brown
Johannesburg - Anglo American was likely to announce significant cutbacks in capital expenditure, jobs and production, but might not unveil new asset sales, analysts have predicted.
Anglo and its 78 percent subsidiary, Anglo Platinum (Angloplat), are due to release the findings of a review of their businesses today.
Last year Anglo spent $4.1 billion (R41.6 billion at yesterday's exchange rate) on capital expenditure, up from $3.7 billion in 2006.
The mining sector has seen heavy job losses due to a slide in commodity prices as global growth has stalled. Rio Tinto, which is battling under a mountain of debt, announced last week that it would slash up to 14 000 jobs and cut its capital expenditure budget by more than $5 billion to $4 billion.
Bloomberg quoted Johann Pretorius, a Nedcor Securities analyst, as saying that Anglo could cut spending by 40 percent, reduce platinum output and delay iron ore projects.
Pranill Ramchander, an Anglo spokesperson, said the group had not forecast its capital expenditure for this year. In the first half, Anglo spent nearly $2 billion on capital projects.
Ramchander said the firm would disclose next year's forecast capital expenditure today.
Anglo's $4 billion share buy-back programme remained in place and $1.66 billion in shares had been bought back.
Henk Groenwald, a resources analyst at Coronation Fund Managers, said he expected Anglo and Angloplat to cut their capital expenditure "quite significantly".
He added: "I would like to see Angloplat announce production cuts. However, Angloplat does have commitments to the government to be a good corporate citizen."
Angloplat approved capital expenditure of R24.8 billion in the first half and spent R5.8 billion in the same period.
Groenwald said Anglo and Angloplat "should cut jobs", but given political sensitivities they would most likely "keep job cuts to a minimum".
Mining groups that plan to cut jobs include Lonmin, which is looking to shed as many as 6 600 jobs locally, and Aquarius Platinum, which has shut its Everest mine for six months and is cutting up to 1 950 jobs.
Another analyst said that skills shortages in the mining sector would make it difficult for Anglo to cut skilled jobs.
Shoaib Vayej, Sanlam Investment Management's head of resources, said Angloplat could cut back production, especially at its Rustenburg mine in North West.
The iron ore market was expected to be well supplied for the next few years and Anglo might need to defer future phases of its MMX iron ore project in Brazil, he added.
According to Vayej, deferral of the project would make the acquisition of MMX "expensive" because output would not come through as expected.
Kumba Iron Ore's Sishen South project in the Northern Cape was likely to go ahead, but the 13 million tons a year expansion of the existing Sishen mine was likely to be delayed.
This could result in Kumba missing its target of 70 million tons of iron ore production by 2015 by as much as 18 million tons. "The steel market has become much weaker than expected," Vayej said.
Anglo Coal was likely to be less affected by any cutbacks, especially in South Africa, where Eskom's demand for coal would remain strong.
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