Anglo cuts deep in hopes of saving itself

Trent Ernst, Editor


The news just gets better and better.

Anglo American has announced it will be cutting two thirds of its staff and closing or selling 35 of its 55 mines.

The third largest mining company in the world has seen its stock price drop more than 75 percent in the last year.

Mark Cutifani, Chief Executive for Anglo says that in the 13 months since he took over the company, he hasn’t seen a consolidated rise in the commodity pricves that we mine. “In particular, we’ve seen pretty aggressive reductions over the last two or three months… I guess the simple point that we wanted to make was that in this sort of environment, nothing can be considered business as usual.”

This new restructuring affects mines worldwide, including Canada.

Indeed, the Snap Lake mine near Yellowknife was one of the first to be felled by this new program, the company announcing the move to put the mine on extended care and maintenance the week before the restructuring announcement. 434 employees there are out of, or will be out of a job soon. About 120 employees will remain at the mine during the shutdown period, which could take up to nine months while about 70 will remain for care and maintenance. “The market collapse has happened so fast, it’s made the operation unviable for many years to come,” said de Beers Canada CEO Kim Truter.

The company will also be reorganizing their operations in Canada, closing their head office and opening a smaller regional support centre in Calgary.

However, this does not mean they are backing out of Canada. Philippe Mellier, CEO of the De Beers Group says they are cutting their diamond exploration budget down to $35 million which will be spent on exploration projects in Botswana, South Africa and Canada.

One of the key properties in the company’s reduced portfolio is the new Gahcho Kue project in the North West Territory. About 100 of the Snap Lake employees will be transferred to that mine, which is expected to be much easier to operate than the troubled Snap Lake mine, which had issues dealing with groundwater seep at the mine.

In September, the government of the Northwest Territory approved a change that allowed De Beers to pump more of the seepwater into nearby Snap Lake, rather than having to store it.

Since opening the mine in 2008, the amount of chloride in the lake had gone up 100 fold, leading to conflicts with local First Nations. The company suggested that allowing the water to be pumped into the lake, rather than store it at a cost of at least $20-million would forestall closing the mine, which has nearly 800 people in its employ.

However, despite the change, the company announced it would mothball the mine last week.

But that is far from the only change. Over the next two years, Capital Expenditure for Anglo American is expected to decrease from $6 billion in 2014 to $2.5 billion in 2017, and the company will be ditching up to 35 of their current mines, which would leave them with 20 properties total. Cutifani says in the past, these properties have been driving the entire company. “The operating cost improvements that we’ve delivered have been leveraged on the improvements in those top 20 to 30 assets. And that is where we see the long-term potential. In thinking about the diversified strategy we are focused on the assets. It is a means to position in worldclass ‘Priority One’ assets.”

He says the company will focus on diamond mining, with De Beers, as well as copper and platinum.

Met Coal, like Peace River coal, as well as nickel iron ore are on shaky ground. “[They] will have to compete and demonstrate their ability to drive down the cost curve to be absolutely front and centre in terms competitive positions with the ability to deliver cash through the cycle,” says Cutifani. “If not, they won’t be in the portfolio. It is as simple as that.”

In July, Anglo announced that it would be closing its Thabazimbi Iron Ore mine after a slope failure earlier in the year made accessing the iron ore remaining in the 80-year-old mine uneconomic to mine.

The corporate structure of the company will be simplified, consolidating from six distinct businesses into three, and the company is getting out of the business of mining Niobium and Phosphates.

Worldwide, the company is reducing its workforce from 135,000 to 50,000, putting 85,000 people out of business. However, many of these jobs will be transferred to other companies along with the properties.

Anglo isn’t the only company feeling the pinch. Shares in other major mining companies have also fallen.

The company did not respond to questions about how this might affect the Peace River Coal mine, which is currently idled, by press time.