Mining casts dark shadow By ALEX BRUMMER
Was there ever a better time to buy natural resources assets? Weighed down by a ton of debt, the grand old dame of south african mining anglo-american is putting its iron ore, coal and nickel mines up for sale along with its niobium and phosphate deposits. some 68,000 jobs will go with the assets.
With its debt rated as junk by credit rating agency Moody, below that of Glencore, BNP and Rio, and its shares out of the FTSE 100, anglo has few other choices.
It joins others including shell and Glencore in the natural resources and refining sale of the century as the commodity super-cycle has been brought to a juddering halt by China’s great slowdown. If anglo does manage to get debts down to $10bn (£7bn), as chief executive Mark Cutifani plans, the slimmed down outfit can focus its attention on platinum, copper and its crown jewel of diamonds. Through its holdings in De Beers the group dominates the diamond market.
Upstarts such as Petra in Botswana are also-rans. Other african producers are tainted with blood. What anglo has through De Beers is not just diamond production but also distribution. It has the ability to sustain wholesale and retail prices by controlling the volumes of rough cut diamonds reaching the market. so it has then opportunity, if it can dispose of assets and bring down humongous debt levels which threaten its existence, to emerge as a slimmer, but very different kind of specialist miner. That means putting the grandiose ambitions of the past behind it.
The key to survival is going to be asset sales. Cutifani says that he has buyers queuing up for niobium, widely used in steel making and alloys, which seems surprising given the state of the global market for steel. Quantitative easing and low interest rates means there is cash for those buyers patient enough to await an upturn in demand for natural resources. But the abrupt deterioration in the value in mining and oil facilities is not just a problem for the producers. It is also an arrow pointed at the banks and finance groups that hold debts of the miners and drillers.
It is among the reasons why the shares in so many of the global banks are treading water.
Code breaking
THE Bank of England’s decision to issue a ‘Market Intelligence Charter’ might look like a piece of bureaucratic window dressing.
Market Intelligence or MI, not to be confused with the motorway or the money supply, is important stuff. It was good MI, from the Bank for International settlements in Basle, which alerted the Old Lady to the collapse of Barings, two decades ago. Better MI, in the run up to the financial crisis of 2007-08, when responsibility was split between the Old Lady and the now defunct Financial services authority (Fsa), potentially could have saved a great deal of pain.
staff handling of MI has not been as meticulous as it might have been. The Bank’s foreign exchange chief Martin Mallett, was fired in 2014 for ‘inappropriate actions’ including the sharing of confidential Bank data with currency dealers. The Bank has reported itself to the serious Fraud Office over alleged manipulations of monetary auctions. and former deputy governor Paul Tucker found himself embarrassed by his conversations over Libor interest rates with Barclays former chief executive Bob Diamond.
The need then for a code that ensures ‘ethical and professional’ behaviour and clearly sets out the limits of information sharing and reporting procedures looks essential. One sentence in the charter looks bothersome. It says the Bank ‘does not seek to identify or pursue regulatory concerns at individual institutions.’
That seems plain daft. MI should be the first line of defence against the next bank implosion.
Power outage
FRENCH state- controlled energy group EDF has eased concerns about its perilous financial condition by cutting its dividend in a move which saves it €1.8bn a year. This raised hopes that it has a sufficiently robust balance sheet to forge ahead with its proposed investment in Britain’s new nuclear project at Hinkley Point in somerset.
It should have been a no-brainer given the generous pricing offered by UK plc which offered EDF and its Chinese partners a price nearly twice that currently prevailing.
The delays caused while EDF and nuclear engineer areva (which it rescued from the knackers yard) get their houses in order demonstrates the poor judgement in allowing so much of Britain’s energy production and prospects to fall into untrustworthy overseas hands.
Playing clever games with our economic security is madness.
Bailey bridge
WHEN the Fsa, precursor of the Financial Conduct authority, located at Canary Wharf two decades ago it was ahead of its times as Barclays, HSBC, Morgan stanley et al followed. Now that the lease is up it is moving to stratford best known for the Olympic Park and a Westfield shopping centre.
Not quite the beating heart of the City for the next chief executive andrew Bailey.