Shareholders have not been having a good time with Anglo American in the last 12 months. First, the firm’s half-year profits were down 38% from £6bn to £3.7bn compared with 2011. But the situation has worsened now, as the firm made a pre-tax loss of £239m last year, compared with $10.8bn profit in 2011. No diamonds in the rough to be had there, then.
So where has it gone wrong? Well, the company was hit by a $4bn write-down of its Minas-Rio iron ore project in Brazil, which accounts for a sizeable chunk of the damage. Then there has been the falling price of commodities in the global market – recession-stricken nations are not snapping up gold and silver (or iron and copper) with the abandon that they did in the good times. Oh, not to mention the series of wildcat strikes that happened in South Africa across a whole string of mining outfits. That hit production, too.
It’s no surprise therefore that the price of shares in the miner has fallen by more than 20% since departing CEO Cynthia Carroll took over in 2007 – just before the global financial crisis kicked off. Shareholders have made their anger so clear that Carroll has resigned and is leaving in April. Mark Cutifani of AngloGold Ashanti is replacing her. But if the global economy doesn’t pick up, he may be powerless to prevent the firm from falling further into loss.
Commenting on Anglo’s results, Carroll said: ‘The mining industry continues to face significant hurdles, and the impact of these coupled with our own company-specific challenges affected our performance in 2012. Prices for all the commodities that we produce were down sharply.’ She added that while she was ‘disappointed’ with the write-down in South America, the firm remains ‘confident’ that the site has a lot of future potential for growth. We’re not really sure that a ‘glass half full’ attitude will do much to assuage investors.
But Anglo is not the only major mining company having difficulties. Just last month, Rio Tinto announced even larger write-downs of its projects, amounting to a $14bn sized hole in the balance sheet.