Anglo American PLC (LSE:AAL) shares tumbled 14% after new details on its planned production, spending and costs for the next three years suggested potentially less generous returns for investors.
Expected capital expenditure will be cut by US$1.8 billion (£1.44bn) out to 2025 as part of the shift in its investment approach to concentrate on what boss Duncan Wanblad called "improving our resilience", with lowering unit costs also in focus.
But while looking to ride out the turbulent market and macroeconomic backdrop, the FTSE 100 company is still investing heavily in growth projects such as the ramp-up of the Quellaveco copper mine in Peru and the longer-term development of the Woodsmith natural fertiliser mine in North Yorkshire.
For 2023, Anglo American's capex target was cut to $5.8 billion from previous guidance of around $6.0 billion.
Capex cuts for 2024 to around $5.7 billion from $6.3-6.8 billion before were mostly from growth projects, where roughly $1.2 billion is now planned compared to $1.8 billion before, both including around $1 billion of capex on Woodsmith, up from the $0.8 billion planned for 2023.
Singling out the planned spending on Woodsmith was a new element in the company's capex guidance, of which more granular detail was shared in a presentation.
Looking ahead to 2025, the planned capex remains steady at about $5.7 billion, down from $5.8-6.3 billion.
The growth capex for this period is estimated at $1.3 billion, again down from $1.8 billion, with another indicative $1 billion spent on Woodsmith.
However, funding for Woodsmith after next year is contingent on board approval, which will be made in "early 2025".
For 2026, a new capex figure of approximately $5.3 billion has been introduced, with growth capex set at $1.3 billion again.
Analyst John Meyer at SPAngel said: "Lower production guidance in 2024 and 2025 has disappointed the market today, following disruptions this year in South Africa and lower PGM and diamond prices."
The lower output, said Russ Mould at AJ Bell, “also means lower earnings and cash flow and potentially less generous returns to shareholders too.
“The scale of Anglo American’s cuts may also have come as a bit of a shock to the market,” which he said suggests incoming finance director John Heasley “may look to keep a tight rein on the purse strings” when he takes over from Stephen Pearce at the end of the year.
A silver lining for investors, he said, is that a significant number of the company's peers have also cut production guidance, particularly for PGM metals.
As PGMs are used in catalyst converters to limit diesel and petrol combustion emissions, declining demand is a factor markets have increasingly been incorporating into forecasts as the shift towards electric vehicles continues.
“On the one hand Anglo’s actions demonstrate some discipline, matched elsewhere in the sector, and on the other constrained production could support higher prices in 2024," said Mould, also highlighting the challenge of a mounting debt pile and a “somewhat patchy" operational performance.