Two of the largest global multinational mining and commodity companies, Anglo-American and Glencore, released their 2023 financial and preliminary results this. Commenting on the results is Tickmill South Africa’s Managing Director, Roger Eskinazi, who says that these latest results underscore the formidable challenges facing the commodity mining industry.
Please see commentary from Eskinazi below for your use:
“Anglo-American’s staggering 94% year-on-year decline in annual profit underscores the volatility inherent in commodity markets. Such drastic fluctuations are not uncommon in an industry heavily influenced by market forces. For Glencore, the halving of EBITDA, as anticipated, reflects a year marked by subdued economic activity, decreased manufacturing demand, and persistently low commodity prices, particularly in coal, natural gas, and oil, despite a strong performance in 2022.
The company’s profit slump can be attributed to the combined effect of falling commodity prices and escalating input costs. This double whammy puts significant pressure on profitability margins, making it harder for companies like Anglo-American to maintain steady financial performance. Glencore has seen a decline in cobalt and zinc prices over the past year has also led to additional impairments, exacerbating the company’s financial difficulties. The economic slowdown in China, a key market, has been a notable factor contributing to these challenges over the last 18 months.
In response to these difficulties, Glencore has taken decisive action, including a drastic reduction in dividends by over 60%. This move underscores the company’s commitment to managing its finances prudently, particularly as it moves forward with a significant acquisition – the purchase of a 77% stake in Elk Valley Resources for USD 6.9 billion. This acquisition is strategically aimed at expanding Glencore’s steel-making coal capacity by adding 20 million tons, with the transaction expected to be finalized by year-end. Anglo-American took a different approach. The announcement of extensive job cuts and a review of contractor agreements at South African operations signals Anglo-American’s proactive approach to addressing its financial challenges. Such measures are often necessary in times of economic uncertainty to streamline operations and improve efficiency.
However, despite these efforts, Glencore’s net debt has risen to USD 4.9 billion, approaching the lower maximum threshold. This suggests ongoing challenges in balancing the company’s financial obligations with its strategic investments and operational performance. While looking at Anglo-American’s substantial increase in net debt, soaring by 50% to USD 10.6 billion underscores the financial strain the company is facing. Such a sharp rise in debt levels could potentially limit the company’s flexibility and increase its vulnerability to market fluctuations.
Overall, while Glencore’s preliminary numbers reflect a tough operating environment and the need for significant adjustments, the company’s strategic moves, including the acquisition of Elk Valley Resources, demonstrate its commitment to navigating these challenges and positioning itself for future growth and stability. The outlook for Anglo-American is no different. The indication of further rationalization efforts across the company reflects Anglo American’s determination to navigate through the current economic headwinds. With commodity prices expected to remain under pressure amidst reduced demand and a sluggish global economy, prudent cost management will be crucial for the company’s survival and future growth.”
