Anglo American Plc is considering further cuts in diamond production due to ongoing challenges in the industry. This poses a complication to its plan of selling the De Beers unit as part of a major restructuring of its business.
Earlier this year, Anglo announced its restructuring strategy in response to a $49 billion bid from BHP Group, the world’s largest mining company. The plan involved exiting diamond mining by either spinning off or selling the De Beers unit, as well as separating its platinum business and selling its coal mines.
However, the miner is currently facing obstacles in all of these areas. A fire and explosion at its primary coal mine in Australia has complicated the sale process, while the diamond market continues to struggle, making potential buyers hesitant. Additionally, Anglo has recently indicated that its platinum business is expected to experience further profit declines.
In light of these challenges, Anglo American Plc is exploring alternative options for selling its coal assets after the fire incident.
Anglo, the parent company of De Beers, has decided to maintain its production target for the time being. However, the company is actively exploring ways to further reduce output. The preference is to wait for a recovery in the diamond market, as internally, De Beers is seen as a valuable asset that should command a price reflecting its status. Unfortunately, the anticipated recovery is proving to be sluggish and there are few indications that it is gaining momentum. Last year, the diamond market practically came to a standstill due to weak global demand and an oversupply issue. This trend has continued into this year, with the crucial Chinese market experiencing poor demand. Additionally, De Beers is facing competition from lab-grown gems and consumers who are feeling the effects of inflation. In April, the company already lowered its full-year diamond target to a range of 26 million to 29 million carats. It is now highly likely that this target will be further reduced.
Anglo American has announced that it is actively exploring options to reduce production and manage working capital in response to high levels of inventory and a prolonged recovery period. The company’s platinum unit, Anglo American Platinum Ltd., has also been impacted by low metal prices, with first-half earnings expected to fall by up to 25% compared to the previous year. As part of a restructuring plan, Amplats is set to become a standalone company, with Anglo’s controlling interest to be distributed to shareholders. This move coincides with cost-cutting measures due to weak prices in platinum-group metals, with palladium and rhodium experiencing significant declines since last year.
Following the fire at its Australian mine, Anglo has also revised down its coking coal target.