ANGLO American’s poor first quarter numbers were among a stream of disappointing production reports from the diversified miners, but at least the group was able to get ahead of another negative factor weighing on the sector – inflation.
“While Anglo optically stands out as disappointing, we believe it is also pre-emptively guiding to the cost inflation realities facing the global mining industry,” Dominic O’Kane, an analyst for JPMorgan Cazenove was quoted as saying in a Financial Mail article.
Inclement weather, labour and supply chain disruption and foreign exchange headwinds are expected to be key factors in driving inflation. The bank expects a downside risk to Anglo’s 2022 earnings and is neutral on its share.
According to Goldman Sachs, inflation could reach about 30% for mining activities while for refining, where there’s a greater use of energy, it could be as much as 35%.
“Cost inflation accelerated in 2021 driven by higher global electricity, fuel and consumables prices, and pressure is set to continue in 2022 on the back of a continued rally in energy and metal prices, as well as an acceleration in general inflation,” said Goldman Sachs analyst, Geydar Mamedov.
It makes for a bumpy start for Anglo’s new CEO Duncan Wanblad. In Wanblad’s favour this year is that Anglo has the best project growth prospects.
Its 350,000 ton a year Quellaveco copper project in Peru will commission in the current quarter. Goldman Sachs estimates that copper’s contribution to Anglo’s earnings before interest, tax, depreciation and amortisation (ebitda) will increase to 25% of total this year from 19% in the 2021 financial year. By the 2023 and 2024 financial years, 42% and 52% of ebitda will be generated from copper sales respectively, the bank says.
Wanblad follows predecessor Mark Cutifani who led the group for nine years. The latter half of this period in charge was enormously successful with Cutifani cementing himself as a favourite among the investment community with no little measure accorded to his persuasive communication skills.
SBG Securities analyst Tim Clark thinks that while Wanblad is following in the footsteps of “a superstar”, he’s well schooled technically. “Duncan knows Anglo Platinum intimately, he’s led copper, and he’s headed up strategy and business development,” he says.
The article can be read in full here.