‘We don’t need cash’
Carroll says group ‘has longest life resources and excellent opportunities’
ANGLO AMERICAN – the R309bn resources group – isn’t in need of finance, says CEO Cynthia Carroll, who added that the group “tends to think positively” about prospects for metals. “I don’t think a rights issue is necessary,” Carroll says of speculation its balance sheet is still relatively constrained and might require tweaking in order to lift flexibility. “The fundamentals of the industry haven’t changed,” says Carroll. “When the upswing comes it will be positive and we’ll be better positioned to take advantage.”
It was reported on 15 June that investors had turned against Carroll for a number of reasons, including fears Anglo may need to pump cash into De Beers, the diamond group in which it has a 45% stake.
Said The Times of London: “De Beers is in negotiations with bankers over US$1,5bn of debt scheduled to be repaid in March. Anglo shareholders are concerned that De Beers may need a cash injection.”
The newspaper added shareholders were pushing for a tie-up with Xstrata, another London-listed diversified miner – a development Carroll says isn’t on the agenda. “You never know the future, but Anglo has the longest life resources and excellent opportunities.”
In a recent note, RBC Capital Markets said Anglo’s balance sheet remained a concern, with its debt to capital ratio at around 31% as at year-end 2008. “We continue to feel the company’s debt to capital ratio could hamper flexibility in the near future,” it said.
Diversified mining groups, including Anglo, have sought a number of ways to shore up their balance sheets amid the economic crisis, which has seen metals prices
plummet – including rights issues.
Anglo has raised $4,7bn in new debt, including a bond and a convertible bond, as well as the $1,8bn disposal of its remaining shares in AngloGold Ashanti. René Medori, the Anglo group’s chief financial officer, recently said it had enough finance for 18 months.
Earlier this year Anglo passed the final dividend, the first time it hasn’t paid a dividend in 70 years. Commenting on that decision, Carroll says it was “a tough decision” but added not one of the group’s shareholders had “told me it was the wrong thing to do” once it had been explained. “We knew that was going to be tough. But we had to preserve our cash and the BBB [credit] rating was very much in our minds.”
Carroll acknowledges buying MinasRio, an iron ore prospect in Brazil, had affected the group’s finances. “There’s no doubt the transaction has put pressure on us. But that’s a short-term concern. We’re here for the long term – for 20 years from now,” she says.
Commenting on the metals markets, Carroll says the recession worldwide would continue to dampen prospects well into next year but that economic growth in China looked likely to be higher than expected this year. “China’s stimulus package launched by its government (which involved loosening credit growth restrictions and improving money supply) is having an impact on commodity demand in a positive way,” says Carroll. “We’ve never sold more iron ore than now.”
Carroll added that the cost of iron ore production in China is leading domestic output downwards and providing opportunities to exporters. Platinum jewellery sales are also “extremely high” – offsetting the downturn in autocatalyst demand. And “met [metallurgical] coal has been pretty strong for us”.
In a note this month, banking group Goldman Sachs suggested the end of Chinese de-stocking of copper, signs that destocking may end in Europe and then a sudden, surprising surge in new investment flows would be a promising sign for copper, a metal that often presaged trading behaviour for other metals.