South Africa’s Anglo American Platinum Ltd. (Amplats), Monday, reported an 86 percent drop in full-year profit, owing to restructuring costs and write-downs as commodity prices remain low. Chief Executive Officer of its parent company Anglo America Plc. Mark Cutifani blames the mining industry for glut on the market which has driven prices to the lowest levels since the global financial crisis. He believes the status quo may not change anytime soon.
Cutifani told a mining conference that cutting supply in line with decreasing demand may not make sense for some producers whose major focus is maintaining market share and driving competitors out of business. Saudi Arabia is an example of this kind of producers. The kingdom’s decision to continue pumping oil at optimum levels is aimed at not losing customers to non-OPEC producers like the United States. Oil prices have thus continued to decline. The price of OPEC basket of thirteen crudes stood at $29.30 a barrel on Friday, compared with $29.93 the previous day, according to OPEC Secretariat calculations.
Like Saudi Arabia, many mining companies maintain optimum production in the face of market oversupply. “This strategy generally has a net negative effect,” Cutifani said.
“Moreover, we can’t rely on a reversal of this price slump any time soon. 2016 is already shaping up to be the most challenging yet. Opinions are divided on whether we have reached the bottom of the cycle … So things may still get worse before they get better,” Reuters quoted the Anglo American CEO to have said.
Amplats is undergoing a cost-cutting programme aimed at addressing plunging prices and low demand for precious metal and the effects of a crippling five-month strike in 2014 which forced it to sell some of its mines. Its parent firm, Anglo American is taking a similar route.
“We will be making the appropriate commercial decisions to exit a number of our mines in several countries around the world – but let’s not see that as a negative step,” Cutifani said.
“For the assets that we choose to exit, it is about giving many of them and their employees a more sustainable future under new ownership that is better suited to focus attention and capital on those assets.”
It is unclear whether the miner will sell its majority shareholding in Anglo American Platinum. The company is expected to announce details about its future portfolio when it releases its annual results next week.