Anglo is to spend less

Madoda Milazi

Madoda Milazi

Current depressed economic conditions continued to take their toll on South Africa's mining industry, forcing Anglo American this week to cut its planned spending for next year by half.

Anglo American yesterday said it had reduced its capital expenditure by more than 50percent to $4,5billion (R45billion) from about $9billion (R90billion), and would only prioritise projects where they expected relative profits.

Cynthia Carroll, chief executive of Anglo American, said: "We have taken decisive action as a result of the fast changing economic climate and have undertaken a thorough re-evaluation of our stay-in-business and development requirements. We have made significant adjustments to prioritise the expenditure in those areas where we expect relative outperformance in the near term while maintaining a high degree of flexibility for our future growth."

She said with its robust balance sheet and high quality asset portfolio, Anglo American was well positioned to weather the current weak economic conditions and to continue to prosper.

The fall in commodity prices and demand has left the mining industry vulnerable to cost pressures, and some mines have begun reviewing their expansion plans.

Various mining houses have been taking different measures in responding to the current economic turmoil.

This year we first saw Xstrata moving away from their bid for Lonmin, then the world's biggest mining house BHP Billiton followed by abandoning the largest mining deal when they withdrew their bid for Rio Tinto.

Makwe Masilela, analyst at Nehawu Securities, said: "It all boils down to unfavourable current economic conditions. As a result it's not surprising to see Anglo American reducing its capital expenditure.

"It only makes business sense to grow your capex (capital expenditure) when there's demand for your products and the current economic turmoil drastically reduced the demand for commodities."

At the early stages of the current crisis many economic experts hoped that the developing economies would carry the candle, especially the likes of China.

But China's economic growth has slowed down to single digit figures, and everybody is waking up to the fact that earlier hopes were just hopes.