Min­ing firms slash sec­tor debt

CityPress - - Business -

Min­ing com­pa­nies are get­ting back into fi­nan­cial shape and have cut the sec­tor’s pool of dis­tressed bonds by at least $60 bil­lion (R895 bil­lion), pro­vid­ing an­other boost to the in­dus­try’s out­look as com­modi­ties en­ter a bull mar­ket.

An­glo Amer­i­can and Glen­core are two of the com­pa­nies whose notes no longer fea­ture in the ranks of dis­tressed US dol­lar de­nom­i­nated debt af­ter sell­ing as­sets and cut­ting div­i­dends to bol­ster their bal­ance sheets.

The num­ber of met­als and min­ing bonds trad­ing at dis­tressed lev­els fell this month to $26 bil­lion from a peak of $86 bil­lion in Fe­bru­ary, the data show.

An­thony Ip, a credit sec­tor spe­cial­ist at Cit­i­group in Syd­ney, said: “There has been a large de­gree of self-help, whether that’s through as­set sales, cost cut­ting or capex ra­tio­nal­i­sa­tion, to im­prove cash flow.

“At the macro level, you’ve got the rally in com­modi­ties prices and the mar­ket ap­pears more com­fort­able with China risks, so that’s help­ing sen­ti­ment.”

Com­modi­ties have en­tered a bull mar­ket, end­ing a five-year rout, as sup­ply con­straints drive up prices in every­thing from soya beans to zinc, while Cit­i­group last month said raw ma­te­ri­als had turned a cor­ner fol­low­ing the big­gest price col­lapse in a gen­er­a­tion. Min­ing com­pa­nies have trimmed loss-mak­ing out­put, low­ered costs and scrapped pledges to con­tinue boost­ing pay­outs to in­vestors to mit­i­gate the ef­fect of tum­bling prices.

Moody’s In­vestors Ser­vice, which be­gan a sec­tor-wide assess­ment of min­ing in Jan­uary that prompted 36 rat­ing downgrades, last month up­graded the out­look on An­glo’s Ba3 se­nior un­se­cured rat­ings from neg­a­tive to pos­i­tive af­ter bet­ter than ex­pected as­set sale re­ceipts. An­glo in April agreed to sell its nio­bium and phos­phate busi­nesses for $1.5 bil­lion.

Min­ing com­pa­nies have an­nounced $27 bil­lion of pend­ing and com­pleted as­set sales this year, in­clud­ing China Molyb­de­num’s $2.65 bil­lion agree­ment to buy Freeport’s stake in the Tenke Fun­gu­rume cop­per-cobalt mine. That’s eas­ing con­cern over pro­duc­ers’ debt, even with raw ma­te­ri­als prices trad­ing about 50% lower than a 2011 peak.

– Bloomberg

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