WHO’S NEXT?
Attention now turns to Anglo American whether it will bolster its balance sheet
GLENCORE’S billionaire chief executive caved this week to shareholder demands that the commodity trader bolster its balance sheet. Now attention is turning to whether rival Anglo American will follow.
The two companies have been among the hardest hit by China’s cooling demand for commodities. And there has been concern that they will be unable to withstand raw material prices at a 16-year low and pay off a combined $43.5 billion (R605bn) in debt.
Measures may include cutting Anglo’s dividend – yielding a record 9 percent, higher than the level in 2009 when the company last scrapped the payout.
The collapse in commodity prices is undermining Anglo chief executive Mark Cutifani’s efforts to turn around the fortunes of the producer in platinum and diamonds in Africa and iron ore in Brazil. Glencore shares rallied the most in almost three years on Monday after the company outlined a $10bn debt-reduction plan, including selling $2.5bn in shares and suspending its dividend.
“If you’re going to have a problem, it’s better to rip the Band-Aid off than not,” said Rob Clifford, an analyst at Deutsche Bank in London. “Glencore just did it and the stock went up. So any companies who are thinking about strengthening their balance sheet may look at Glencore.”
Anglo shares slumped by 42 percent this year, a decline second only to Glencore in the UK’s FTSE 100 index.
The company is seeking to raise $3bn by selling assets, and is cutting jobs to trim costs. It’s already raised almost $2bn this year by offloading its tarmac business and two copper mines in Chile. Anglo’s platinum unit will make an announcement today on selling higher-cost mines in South Africa to Sibanye Gold.
“Anglo’s first priority will be trying to deliver the turnaround programme, including the asset-sale process,” said Marc Elliott, an analyst at Investec in London.
$1bn dividend
If it fell short, the company might have to follow Glencore’s lead, he said. Anglo reported a $3.02bn loss in the first half of 2015 and has net debt of $13.5bn. The dividend costs the company more than $1bn.
Anglo surprised investors in July by maintaining that its 32c a share dividend. Cutifani said at the time it was always under review. “In these environments, you take each six months as it comes.”
Glencore’s decision to halt its dividend came less than three weeks after the commodity trader and miner said it was confident it could continue to make the payment to shareholders and preserve its credit rating. Chief executive Ivan Glasenberg made the U-turn after two weeks of discussions with shareholders from North America to Europe. The fresh approach was triggered by the almost-universal bearishness on commodity prices that investors expressed in talks, surprising Glencore’s management, said someone familiar with the matter, who did not to be identified.
“Glencore has set a precedent,” said Elliott. “It makes it easier for Anglo to cut the dividend, and a lot of people are already pricing it in.“
Cutifani’s predecessor, Cynthia Carroll, stopped Anglo’s dividend in 2009 for the first time since World War II as the global financial crisis roiled markets. That sent the shares tumbling 17 percent and came to define her stewardship of the blue chip mining company.
“Unlike other management teams in the sector, Glencore has acknowledged its debt problem and is taking steps to address it,” wrote Bank of America analyst Jason Fairclough. “Anglo has a geared balance sheet and will be cashflow negative after dividends for the next few years. While the company has ample liquidity, we don’t think the equity market will reward this approach.” – Bloomberg