Anglo update was downbeat with copper cuts, diamond losses

Duncan Wanblad, CEO, Anglo American

DE BEERS would be lossmaking during the second half of the 2023 financial year ended December 31 after closing its two final cycles with cumulative sales of only $180m.

“We face significant pressure in the downstream amid a consumer down swing and low China recovery,” said Duncan Wanbland, CEO of Anglo American which owns 85% of the diamond miner and marketing. “De Beers has been lossmaking.”

The diamond group produced a lower than planned 25 million carats for the year compared to guidance of 30 to 33 million carats, but Wanblad said “the fundamentals for diamonds remain strong and we expect to deliver into a bounce-back next year.

“What has gone against us is the market, especially in the second half. Demand for diamonds has fallen, especially as global GDP has fallen, but all cycles end and we believe the current weakness is temporary,” he said. “Already there are some signs the market might be beginning to turn.” De Beers was reducing its overheads by $100m.

This was part of a new $500m cost reduction drive by Anglo in an investor update that disappointed analysts. Production cuts for 2024 to 2026 were 13%-19% below consensus, with the most severe of cuts in copper, said Morgan Stanley. This was owing to unprofitable volumes at Los Bronces and to address a near-term geotechnical fault at Quellaveco.

“The reset to copper guidance for the next two years is quite material, roughly 200,000 tons downgrade to mid-point 760,000 tons, 720,000 tons in 2024 and 2025,” said Bank of American analysts in a note.

The firm’s Woodsmith mineral fertiliser (Poly4) project, which is forecast to consume $1bn a year in capital expenditure, attracted some of the questioning. Analysts asked for details as to when Anglo would consider sharing the $4.8bn project with an equity partner.

“At the right time and for value,” said Wanblad. When pressed by an analyst for more details, he appeared irritated, responding: “I have gone over this ground, but I will explain it again.” Some analysts remain sceptical about Woodsmith given the size of investment and given that Anglo wrote down the project for $1.8bn in 2022.

“Will the mine beat its cost of capital?: No,” said HSBC analyst Shilan Modi in a report last month. Woodsmith would have to generate annual earnings of $425m in 2030 compared to the bank’s base case earnings of $230m, he said.

As a result, analysts want Anglo to share the capital cost as it did by selling a 40% stake (in two tranches) in Quelleveco to Mitsubishi Corporation.