SA miners ‘need to fix bad dividend record’
As SA mining companies struggle to get through the doors of North American investors to make a pitch, their boards are pushing to change the way they manage their cash, debt, asset pipeline and rewards for shareholders.
At the Joburg Indaba mining conference, a number of finance directors and investor relations officials spoke about the changes wrought on their business and a shift in shareholder sentiment towards resource companies, which, by and large, have had a dismal track record in capital allocation and returns for shareholders.
Chairing a panel discussion, Anglo American director and former fund manager Jim Rutherford spoke of his past frustration in dealing with mining companies, particularly in the gold sector, which were obsessed with growth at the expense of investors.
“The worst thing that happened for the gold industry is when the growth company concept was created in North America alongside a 0% dividend yield. The model was: give us loads of your capital and you get none of it back,” he said.
Fresh from an investment roadshow to the US, Johan Theron, corporate affairs executive at Impala Platinum, the world’s second-largest source of the metal, said the paucity of dividends from SA’s platinum group metal (PGM) miners had made attracting new buyers of shares difficult.
“The platinum group metal industry hasn’t been paying dividends for a long time and that makes conversations in North America very difficult. Mining has become so small in the international financial pool and SA’s PGM miners are even smaller,” Theron said.
“We have a very bad track record. It will take time to establish trust and get people to invest in us.
“Another thing that has changed fundamentally is that investors there don’t have to invest in equities. They have alternatives. In the past if they wanted exposure [to PGMs] they’d buy equity. They can now buy exchange-traded funds,” he said, adding that in some cases shares in PGM companies are less liquid than the metalbacked funds.
Shareholders are often at the back of the queue when it comes to capital allocation, said Stewart Bailey, senior vicepresident of investor relations at AngloGold Ashanti, the world’s third-largest gold miner.
AngloGold paid $150m in interest a year on its debt, while paying a $30m dividend.
“We need to turn that around to attract equity investors back into the story. Debt investors, however, love it. It’s fabulous for them. They get yields far superior to those on the S&P, but equity investors are at the back of the queue. If we are to make ourselves relevant we need to fundamentally shift that around and move them to the front.”
Noting similar difficulties in securing an audience with North American investors, Bailey said he had noted a “growing apathy” in the international investor base towards SA-listed mining stocks over the past five years.
Bothwell Mazarura from JSE-listed Kumba, Africa’s largest iron-ore miner, said when the price was well above $100 a ton the Anglo American subsidiary had focused on volumes, regardless of how much waste it had to mine, knowing it would make money. Then, when prices fell to about $30 a ton in 2014, there was a cold dose of reality that forced a rethink of the business.
“It became about a balance of how do we now show we have a balance sheet that withstands these market shocks, how do we make sure we have enough capital to invest in the business, and then obviously how do you sustain the returns to our shareholders,” Mazarura said.