Britain’s major mining companies face numerous challenges.
The first of these is operational in nature: Glencore and Anglo American, two of London’s largest raw materials groups, have suffered profit declines in 2023.
At Anglo American, adjusted EBITDA fell 50 percent year-on-year to $17 billion in 2023, while net profit fell 94 percent.
Glencore is struggling to cope with the attempt to exit its legacy coal business. The company generated EBITDA of $17.9 billion in 2022 – more than the group’s entire return in this regard for 2023.
The problem for all mining companies – not just Anglo and Glencore – is that we no longer live in the good old days.
Instead, it sets out a roadmap for the metals that are important for the energy transition: nickel, cobalt and zinc.
Anglo is also trying to get into the battery metals space, but remains heavily tied to another poorly performing asset class – platinum group metals (PGMs), which are used in the diesel and petrol car industries.
In addition to a thriving diamond market, PGMs will cost Anglo around $5.5 billion in revenue in 2023.
The problem for all mining companies – not just Anglo and Glencore – is that we no longer live in the good old days.
In recent history, mining companies have rarely been as profitable as they were in the period immediately following the pandemic, which virtually ignored individual market changes and drove up all commodity prices.
Meanwhile, mining subsectors have lost their stride and are beginning to reconfigure their individual supply and demand dynamics. This is where the underlying issues come to the fore.
For example, in the nickel market, short-term demand was dramatically overestimated, which led to a market flood and painful consequences for those affected.
Making matters worse is a monopoly on supply from Indonesia, and mining companies like Glencore are struggling to sell the metal at a lower market price. In addition, operating costs have risen dramatically compared to a decade ago.
The company felt the impact of the nickel price and announced the sale of its stake in the Koniambo mine in New Caledonia after a decade without profits.
The head of the French metal mining group Eramet said last week that Indonesia would “make the old traditional players structurally uncompetitive in the foreseeable future.”
Nevertheless, the company’s chief executive, Gary Nagle, is determined to spin off Glencore’s coal business to the US and instead focus its UK-based operations more on green metals – which will be an uphill battle for the foreseeable future.
China also continues to weigh on mining companies as its copper-starved real estate business remains sluggish despite government efforts to stimulate it.
Companies like Anglo are sitting on outdated assets and analysts know that large-scale projects must be found quickly to avoid an even greater slide into the supposedly high production deficits.
However, Anglo faces a challenge that is not as great for competitors such as Glencore, Rio Tinto or Vale: its portfolio aims to serve two oppositely growing ends of the automotive market.
The PGM Group’s costly revenue shortfall in 2023 is largely due to stagnant demand for gasoline and diesel vehicles. And with demand for battery metals also hitting rock bottom, the company is in a bind.
Glencore and Anglo are not Shell and BP. With market capitalizations of $45 billion and $23 billion respectively, they appear to have relatively comparable positions on the London-listed market.
However, due to demand in the sectors they serve, mining companies are far more exposed to market volatility.
For now, both Glencore and Anglo can weather the instability thanks to their manageable debt burdens and the resources they need to try to increase their profitability in any way possible.
But investors should prepare for a bumpy ride.
