Anglo American CEO Sees Long Commodities Winter -- Update
09 February 2016 - 9:14AM
Dow Jones News
By Scott Patterson in Cape Town, South Africa, and Alex MacDonald in London
Have commodity prices bottomed out yet?
Anglo American PLC Chief Executive Mark Cutifani doesn't think
so, saying Monday that 2016 is set to be even more difficult for
mining companies and commodity markets than 2015. To put that in
perspective, copper and iron-ore prices fell 25% and 40%
respectively in 2015, and Anglo's share price dived 75%.
"Opinions are divided on whether we have reached the bottom of
the cycle, " Mr. Cutifani said in a speech at the Investing in
African Mining Indaba conference in Cape Town, South Africa. "So
things may still get worse before they get better."
Mr. Cutifani's downbeat mood is broadly shared here at Mining
Indaba, an annual conference that draws much of the mining world's
elite. Executives, investors and analysts say they don't believe a
recent rally in metal prices and mining companies' shares will
last.
Anglo shares are up more than 15% this year, while Swiss mining
and trading company Glencore PLC has risen more than 8% . Prices
for copper--used in power-transmission lines, skyscrapers and
appliances--have increased 6% since hitting $4,325.50 a metric ton
on Jan. 15, their lowest price in six years.
But a host of analysts agree with Mr. Cutifani. Several have
said in recent notes that the rally has been fueled primarily by
the U.S. dollar weakening against other currencies. This makes it
cheaper for foreign buyers to purchase commodities that typically
are priced in dollars, but analysts say it doesn't represent a
fundamental shift for mining companies.
In a weekly Citigroup poll, the bank said 93% of respondents
believe Anglo's share price hasn't bottomed out. Meanwhile, 71% of
respondents said they remain bearish about the six-month
mining-sector outlook and 14% said they remain bullish. The bank
didn't disclose how many investors participated in the poll.
"Such episodes of sharp corrections in prices tend to ignite the
question of whether we are witnessing the reversal of the
downtrend," said J.P. Morgan Chase & Co. analysts in a note on
Friday. "In this instance, we believe the answer to be no."
The slump has been a long, downhill slide for mining companies
that ramped up spending and production a decade ago, when Chinese
demand for industrial metals was soaring. During the past 2 1/2
years, China's economy has cooled, growing at 6.9% in 2015, its
slowest annual growth in a quarter-century.
Now, companies are paying the price for all the production
launched when the market was hot, some executives said.
"The challenge for industry is not demand, it's excess supply,
and it needs to leave the market to create a long-term sustainable
future," said Graham Kerr, the CEO of South 32 Ltd., a miner of
coal, aluminum and manganese.
Anglo has been among the companies hardest-hit by low prices.
Mr. Cutifani said commodity prices have fallen about half a
percentage point every month since he took over the company about
three years ago.
The slump in prices has deprived Anglo of roughly $350 million
in revenue a month, he said. "It's a big number," said Mr.
Cutifani, whose company is scheduled to report its half-year
results next week.
Anglo rolled out a restructuring plan last December involving
the elimination of 85,000 jobs. Mr. Cutifani said Monday that Anglo
has already reduced costs about 30%, but "we need to do a lot
more."
The problems facing Anglo were highlighted Monday, with its
platinum-mining unit swinging into the red in 2015 on impairment
charges and restructuring costs amid low platinum-group metal
prices.
Johannesburg-listed Anglo American Platinum Ltd. posted a net
loss of 12.13 billion South African rand ($757.1 million) for the
full year, compared with a profit of 624 million rand a year
earlier.
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
February 08, 2016 16:59 ET (21:59 GMT)
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