Anglo seen cutting its dividend
ANGLO American could cut its dividend for the first time since 2009 as tumbling commodity prices reduce the cash available to pay investors.
Analysts at Barclays, JPMorgan Chase and Investec all said the company might make a cut when it reported first-half results next week, without specifying the scale of any reduction. Anglo, which spent $1 billion (R12bn) on dividends in 2014, has not reduced the payout since it was halted during the global financial crisis.
The speculation underscores the challenge faced by chief executive Mark Cutifani, who is seeking to almost double the company’s return on capital by improving mines and selling assets. He is doing that at a time when prices for copper, iron ore, thermal coal and platinum, representing half of Anglo’s revenue last year, are trading in or close to bear markets.
Cutifani “has been dealt a very rough hand”, Gavin Wood, the chief investment officer of Kagiso Asset Management, said. “They need to cut back on costs, on capital expenditure, preserve cash and weather it out.”
Shares of Anglo retreated 28 percent this year in London, compared with a 9.9 percent drop in the Bloomberg world mining index of 79 companies. The company is forecast by Investec to report negative free cash flow of $1.6bn this year, more than double last year’s level.
Suspended
The shares fell 17 percent on the day Anglo suspended the dividend in 2009. The payouts were reinstated the following year and the company paid a combined interim and final net dividend of 85 cents a share in each of the past three years, implying a current yield of 7 percent, data show.
The dividend “is going to be under pressure” because it would likely increase debt, Hanre Rossouw at Investec Asset Management said. “Where commodity prices are at the moment, maybe it doesn’t make sense to take on more debt.”
Since the sale of its 50 percent stake in Lafarge Tarmac for $1.5bn in July 2014, Anglo has sought to sell platinum mines in South Africa, copper assets in Chile and thermal-coal operations in South Africa and Australia.
“We are 18 months into a three-year turnaround programme that is fundamentally repositioning Anglo American,” James Wyatt-Tilby, a company spokesman, wrote. He declined to comment on the dividend.
Cutifani has support from the company’s biggest investor, the Public Investment Corporation, which has an 8.3 percent stake. It said in statement that Anglo remained one of the fund’s key long-term investments.
The chief executive has also made progress in improving the efficiency of the company’s mines. Cutifani pointed to improved productivity at its Los Bronces copper operation in Chile and its Grasstree and Moranbah coking-coal mines in Australia in May.
Shares climbed 1.2 percent higher to close at R169.01 yesterday. – Bloomberg