Anglo American shows mining’s old economy problem

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It is tough to be a miner when the only material investors care about is silicon. As markets around the world race higher, fuelled by Nvidia’s blowout results and a mounting AI frenzy, mining chiefs are left making their pitch that — well, actually — the commodities of the future are the metals needed for electric vehicles and renewable energy.

As much as Anglo American maintains the metals it produces such as platinum and nickel are “critical in enabling . . . sustainable green solutions”, the mining sector has been feeling decidedly old economy of late. Prices of these industrial metals have fallen sharply in the past couple of years. In its full-year results on Thursday, the miner said it would rethink its portfolio.

Duncan Wanblad, after almost two years as chief executive, must wonder what has hit him. Anglo’s share price, including dividends, has trailed its large London-listed peers by at least 50 percentage points. Despite healthy ebitda improvement in its iron ore and copper divisions Anglo’s ebitda fell nearly a third in 2023 to $10.2bn.

A diversified portfolio that was meant to be highly desirable has become dependent (71 per cent) on iron ore and copper. That’s because more than $4.5bn of ebitda disappeared from its platinum and nickel operations alone. The average price of its South African platinum group metals fell 35% to $1,657 per PGM ounce — the weakest since 2019 and a problem given high costs at these mines.

Nickel, once a great “green” hope for miners, instead is one of the world’s worst-performing commodities over 12 months. Anglo, like peer Glencore that cut its dividend this week, has talked up battery metals and built up its copper business. But both have been sideswiped by multiyear surges of nickel supply from Indonesia.

As prices fall, the companies can only awkwardly point out that these metals now matter less and less to the group’s profits. Indeed, Rio Tinto — overwhelmingly making money in the age-old mining business of shovelling iron ore from Australia to China — has fared better than its more battery metals-focused peers.

The good news is that in years past these bouts of commodity price weakness might have caused serious damage to the sector. Anglo and Glencore have manageable debt piles and can steer through this slow period. The collaboration between Anglo and Vale to share iron ore infrastructure in Brazil shows a pragmatic, cost-saving approach that could be deployed elsewhere in the sector, say in Chile’s copper belt around Anglo’s Collahuasi and Los Bronces projects.

But the miners are still struggling to convince investors of their place in the new global economy. Perhaps AI can help?