Shares in Anglo American (AAL) have been sinking all year in the face of deteriorating commodity markets. But they dropped like a lead balloon to an all-time low this month after chief executive Mark Cutifani announced a major restructuring plan, including a decision to scrap the miner's final dividend this year and annual dividend in 2016.
What's new:
■ Dividend suspended until at least 2017
■ 60 per cent of mines sold or closed
■ Capital expenditure cut by another $2.9bn for the years 2015 to 2017
In order to improve the group's free cash flow, management plans to sell or shut 60 per cent of its mines. This will involve cutting the number of divisions from six to three: De Beers, Industrial Metals and Bulk Commodities. This will allow the miner to reduce its workforce by about two-thirds. Anglo is targeting $3.7bn (£2.4bn) in cost and productivity improvements by 2017 compared with 2013 levels. Management expects to deliver around $1.6bn of these savings by the end of the year.
Anglo also confirmed the sale of its Brazilian phosphates and niobium businesses during 2016. Management is targeting a total of $4bn in disposal proceeds as it tries to reduce leverage. Disposals amounting to around half this sum have already been agreed. Capital expenditure will also be slashed by a further $1bn by the end of 2016, on top of the $1bn guided at the time of the group's first-half results in July.
But these efforts to shore up the balance sheet were not enough to stop Moody's, the ratings agency, from downgrading its credit rating for Anglo American to Baa3 from Baa2 in the wake of the announcement.
Barclays says...
Hold. Overall an underwhelming announcement by Anglo, with marginal incremental measures to protect the balance sheet. We fear it may not be enough. We were hoping to see more material cuts across more divisions including platinum (Union, Pandora and Bokoni are still operating), diamonds, nickel and coal to remove loss-making assets from production. Looking back at the past two and a half years of Mr Cutifani's tenure, we have some sympathy with his strategy to fix the assets, given the unrelenting decline in commodity prices. However, we believe it is rapidly turning into a case of "too little too late".
Deutsche Bank says...
Buy. We had four main questions. What are your balance sheet options? Why has the pace of restructuring been so slow? Is further management change needed? Are there any signs of improvement in your core markets? We got some answers, but not enough to comfort us that Anglo is out of the woods yet - the can has been kicked into February. We are particularly frustrated by the lack of additional business improvement gains to offset $500m worth of volumes lost and the commodity price weakness since the interim results; the original business improvement target of $3.2bn by the end of 2016 is now $2.7bn. Anglo does have plenty of liquidity, but needs to accelerate closures and disposals.
