Mining firms slash sector debt
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.