Debt has it found it­self in just two years ago. turn­around, es­cap­ing the dol­drums This miner has man­aged an im­pres­sive

Finweek English Edition - - Indepth -

at one point dur­ing An­glo Amer­i­can’s in­terim re­sults pre­sen­ta­tion last month, a ques­tion posed by the au­di­ence called for in­ter­ac­tion be­tween three of the group’s ex­ec­u­tives: Mark Cu­ti­fani, the CEO, Tony O’Neill, the firm’s tech­ni­cal di­rec­tor, and the newly ap­pointed chief fi­nan­cial of­fi­cer (CFO), Stephen Pearce.

It would be wrong to sug­gest one was sud­denly trans­ported to a bar in Mel­bourne – although all three are Aus­tralian, there wasn’t a “G’day mate” to be heard – more, rather, the sense that Cu­ti­fani has trans­formed An­glo Amer­i­can. It couldn’t have been fur­ther from the An­glo of Tony Tra­har or Ju­lian Ogilvie-Thomp­son who once headed the group in the 1990s.

And spir­its were high; ca­ma­raderie in abun­dance, and a far cry from the at­mos­phere less than two years ago when Cu­ti­fani, then sport­ing a gi­ant rose in his lapel in the hope an­a­lysts would be dis­tracted enough not to no­tice the tur­moil in which the group had been flung by per­ilously low com­mod­ity prices.

Cu­ti­fani’s re­sponse was to cut back as­sets and projects in an ef­fort to con­trol the bal­ance sheet. Nearly 30 sep­a­rate as­sets were hived off, in­clud­ing the com­pany’s coal, phosphate and ag­gre­gates busi­ness. Jobs went with them but jobs were also cut. An­glo’s head of­fice in Jo­han­nes­burg turned eerily quiet and there’s still lin­ger­ing talk An­glo might leave the city for cheaper digs.

Stronger fi­nances

But this year’s in­terim re­sults pre­sen­ta­tion was like a stroll along a palm-lined road into the Eter­nal City for Cu­ti­fani. As­sisted by the com­pletely un­fore­seen re­cov­ery in com­mod­ity prices dat­ing from about Jan­uary 2016, net debt was re­duced to $6.2bn – its low­est level in five years and well below the $7bn yearend tar­get that Cu­ti­fani had orig­i­nally set the group.

More im­pres­sively, An­glo an­nounced the re­sump­tion of div­i­dends, start­ing with the in­terim – per­haps sur­pris­ing at least half of the an­a­lyst com­mu­nity who hadn’t an­tic­i­pated it – and a new pay­out pol­icy of 40% of earn­ings. Al­most im­me­di­ately an­a­lysts dived for their cal­cu­la­tors and spread­sheets.

“Un­der An­glo’s new 40% div­i­dend pol­icy, at cur­rent com­mod­ity prices, we es­ti­mate a pay­out of ap­prox­i­mately $1.2bn to $1.4bn in 2017-18, equiv­a­lent to a div­i­dend yield of 6% to 6.7%,” said JP Mor­gan Cazen­ove in a note to clients. It added that An­glo would con­tinue to delever­age its bal­ance sheet while con­tin­u­ing to pay out at­trac­tive div­i­dends, and rec­om­mended buy­ing the share as the com­pany was un­der­val­ued.

Prices to cool down?

That was on 28 July. Shares in the group have since been steadily on the march, gain­ing a fur­ther 4.7% at the time of writ­ing. “An­glo is up about 14% over the past week, roughly dou­ble the peer group av­er­age re­flect­ing the par­tial rerat­ing we an­tic­i­pated through the div­i­dend re­in­state­ment,” said Mac­quarie in a re­port dated 1 Au­gust. But it warned of pos­si­ble share price weak­ness to come.

The ex­pec­ta­tion is that iron ore and coal prices – the bulk com­modi­ties Cu­ti­fani said in the teeth of his re­struc­tur­ing he wanted to di­vest from – will start to cool. Iron­i­cally, th­ese were the min­er­als that propelled An­glo to its strong fi­nan­cial per­for­mance in the six months ended June. Yet Mac­quarie found rea­sons to be op­ti­mistic.

“Over the next few months we be­lieve the stock is likely to ex­pe­ri­ence weak­ness as iron ore and met [met­al­lur­gi­cal] coal prices cool,” it said. “This will likely of­fer more at­trac­tive en­try points, in our view,” it added. In short, the bank – an­other Aus­tralian – likes the An­glo in­vest­ment case.

The ques­tion is, how­ever, where it will go from here. Per­haps ex­press­ing the ex­treme fickle na­ture of the mar­ket, one an­a­lyst at An­glo’s in­terim pre­sen­ta­tion asked whether the group’s new cau­tion in terms of its bal­ance sheet man­age­ment would come back to bite it

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