Anglo American’s worst day on the London stock exchange for 15 years has heaped pressure on relatively new boss Duncan Wanblad, prompting questions over why the British miner has been so badly driven off course.
The FTSE 100 group’s third downgrade in production expectations in 20 months since the ex-director of strategy took charge sent shares 19 per cent lower on Friday — its biggest one-day fall since the financial crisis.
Compounding this year’s 48 per cent tumble, the platinum, iron ore, copper, steelmaking coal and diamond producer is easily the poorest performing mining stock of the large groups, including BHP, Rio Tinto and Vale.
With market capitalisation down to £23bn compared with a peak of more than £50bn when Mark Cutifani handed Wanblad the reins in April 2022, questions centre on whether it is a victim of circumstance or poor management.
Has the troubled South African economy, where it mines platinum, iron ore and diamonds, geological problems in Latin America and the commodity downturn caused its woes or is Wanblad’s strategy misfiring?
Either way, as market chatter increases over the potential for a takeover or an activist-led break-up as shares start to look attractively cheap, investors want action to arrest the decline.
“The share price has materially underperformed peers in 2023 and it is not just because of their commodity mix. Management is under pressure now to deliver the cost savings and to improve the operational performance,” said Myles Allsop, analyst at UBS. “Shareholders want to see a turnaround.”
Cutifani, who took Anglo’s share price to record highs just before he left, told the Financial Times on Monday “it was easier to be quick and aggressive” in his day.
Then, he slashed headcount from 160,000 people to 90,000 and strengthened a balance sheet bloated with debt during 2015’s brutal commodity market downturn.
He added that “costs continue to rise so investment in new technology and change is relentless”, as mining becomes more challenging across the world.
But Cutifani, chair at rival Vale’s copper, nickel and cobalt production arm Vale Base Metals, observed that “the organisation has revisited its investment strategy in innovation”, although he refused to be drawn on whether that was good or bad.
Known for being shy and introverted, Wanblad was quick to come forward on Friday to make clear that the company’s problems were largely out of his control and due to a “very unique set of circumstances coming out of the Covid years and then some specific logistics and infrastructural issues”.
People familiar with the matter add that the group’s production forecasts had overestimated the role of technology to boost output, with these now more realistic under Wanblad, who has prioritised innovations to improve output.
The biggest shock for investors on Friday was a savage downgrade to the company’s forecast copper production in the next two years.
This was owing to geological issues at Quellaveco, the large copper mine in Peru and a driver of near-term growth, and plans to temporarily close one of two processing plants at the 156-year-old Los Bronces mine in Chile.
The predicted 200,000-tonne reduction in production of copper next year compared with a previous range of 910,000 to 1mn tonnes is equivalent to removing one of the world’s largest mines for the metal, a vital component for power lines and electric cars.
Shares took a big hit because the production cut “has taken away the near-term growth in the portfolio” with the company’s fortunes more exposed to “potential commodity movements”, said Tyler Broda, analyst at RBC.
This could lead to large structural changes at Anglo next year, with the potential for spin-offs and divestment, he added.
Another big problem for the group is its reliance on South Africa, where the group has a long history, stretching back more than a century to Ernest Oppenheimer’s founding of the company in 1917, with its platinum and iron ore operations driving most of the company’s earnings.
Almost 8mn tonnes of material has been stockpiled at the country’s Kumba iron ore site, forcing production cuts, because of transport hold-ups and blockages after the collapse of Transnet, the state rail, port and pipeline monopoly.
The group has also been hit by the problems at Eskom, South Africa’s other big state monopoly responsible for most of the country’s electricity production. Eskom has imposed rolling blackouts because of constant breakdowns at its coal power stations.
In addition, De Beers, the group’s diamond producer, and Anglo American Platinum have suffered because of a sharp plunge in prices, caused by the steep rise in interest rates and tepid demand in China.
Investors fret that diamond and platinum and palladium production are in structural decline. This is because of lab-grown gemstones and the replacement of petrol and diesel cars with electric vehicles, which do not rely as heavily on platinum and palladium.
Wanblad rejects this, insisting these commodities have a bright future.
Other investors added that Wanblad had been dealt a difficult hand, with mining becoming harder as the quality of ore deteriorated and ESG standards required complex desalination plants to supply freshwater and mining waste storage infrastructure.
“Duncan has had a perfect storm, a lot of which is not of his own making,” said one person familiar with internal decision-making at the group.
Even so, despite an overhaul in senior management, $1bn of identified cost cuts and a public plea to work with the South African government to try to resolve its power and logistics problems since he joined, not everyone believes he has been decisive enough.
“Duncan has taken too long — he has been there a year and a half and he’s still reorganising,” said one resources investor who does not hold Anglo stock. “There’s a lot of fires and he hasn’t been able to control it.”
He has also been responsible for proceeding with Woodsmith, a fertiliser mine in Yorkshire considered a high-stakes bet on the niche product polyhalite, that led to a $1.7bn writedown in February and will not generate revenue until 2027.
Bankers and analysts said a further drop in shares would make the company a takeover target for the likes of Glencore or Rio Tinto.
But they warned any deal would be complex and a more likely outcome was an activist building a stake and demanding a spin-off sale of its diamonds, platinum or steelmaking coal operations, something Wanblad was acutely aware of.
“Is this time to review elements of the portfolio? Well, I think all of the time is the right time to review elements of the portfolio,” he said on Friday. “There are no sacred cows.”