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Johannesburg - The shares of Anglo American and two of its key subsidiaries on the JSE plunged to multiyear lows yesterday.
This came after the group announced that it had halted its dividend and would restructure by selling assets, shutting mines and slashing jobs, while the two subsidiaries, Anglo American Platinum (Amplats) and Kumba Iron Ore, issued profit warnings.
Anglo, the world’s fifth-biggest diversified global mining group by market value, saw its shares fall by as much as 12.9 percent, which made it the biggest faller among shares included in the all share index, before ending 10.72 percent weaker at R72.76 as investors worried that its plans were only a short-term solution.
In intraday trade, Anglo shares fell to the stock’s lowest level in more that 20 years.
They have plunged close to 70 percent this year as investors worried about the slow pace of turnaround efforts launched by chief executive Mark Cutifani since 2013.
“Investors are still concerned whether or not Anglo as a business retains the liquidity to continue to grow,” Kieron Hodgson, an analyst at Panmure Gordon, said.
Cutifani is seeking to keep the company afloat with metal prices showing no signs of a recovery from the lowest levels in six years.
At current spot prices, the company did not meet the criteria for an investment-grade credit rating, said Rene Medori, the mining company’s chief financial officer, noting that any downgrade would not impact the cost of financing or the way Anglo ran its business. He said the company had no plans to tap shareholders for more money.
Amplats, in which Anglo has a 78 percent stake, lost as much as 11 percent before closing down 7.14 percent at R70.74 and Kumba, in which Anglo owns a 69.72 percent interest, declined by as much as 13.6 percent before finishing down 8.63 percent at R36.
Amplats shares yesterday fell to the lowest since 2000 and Kumba’s shares tumbled to the weakest level since November 2006 when the company first listed on the stock exchange.
Together Anglo, Amplats and Kumba lost close to R16 billion in market value yesterday.
Anglo said it would sell more assets, suspend dividends until the end of next year and whittle down its business divisions to three from six in the face of severe commodity price falls. This is the second time since World War 2 that the mining company has halted its dividends.
In 2009, then Anglo chief executive, Cynthia Carroll, shocked the group’s investors and halted the company’s dividends, and Anglo’s shares lost 17 percent on that day.
The promise of increasing dividends are one of the key reasons why investors buy shares in mining companies.
“The value in a progressive dividend is that the market believes it won’t get cut,” said Richard Knights, a mining analyst at Liberum Capital. “If all four of the big miners have to cut their dividends during this down cycle, it would be pretty clear proof that progressive dividends are meaningless.”
Anglo indicated that dividends would rise and fall in line with earnings, abandoning a policy under which the payout rises, or is at least maintained.
In contrast, rival BHP Billiton and Rio Tinto are sticking with progressive dividends.
Yet both companies are vulnerable to a slump in iron ore, with the benchmark price for the steelmaking material falling below $40 (R583) a ton on Monday, to a record low for data going back to May 2009. It is down 80 percent since peaking in 2011 at $191.70.
Glencore, one of the top four UK-listed mining firms, was the first to curb dividends, cancelling its full-year payment in September as part of a programme to reduce debt and halt a rout in its shares.
Anglo said it would cut its assets by 60 percent and reduce its workforce to 50 000 from 135 000, the deepest job cuts announced in the sector since the commodity crisis began.
NUM resistance
The National Union of Mineworkers (NUM), which is the largest trade union in the mining industry, yesterday criticised the company’s restructuring move as irresponsible and insensitive.
NUM spokesman Livhuwani Mammburuu said it would fight to ensure that jobs were protected during the restructuring.
After the restructuring, Anglo will be much smaller. It will control between 20 and 25 assets, down from about 55 assets. It also aims to raise $4bn through assets sales, up from an earlier target of $3bn.
The company – which also plans to sell some coal assets in Australia and South Africa and close loss-making mines – said it had secured $2bn in assets sales so far.
“While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action,” Cutifani said.
SP Angel analysts said in a note: “With net debt still high relative to the current market cap, this looks like a survival plan for the next two years.”
The mining company said its net debt guidance at the end of 2015 was unchanged at between $13bn and $13.5bn.
It lowered its capital spending plans, with expenditure seen at $3.2bn next year from an earlier guidance of between $3.6bn and $3.9bn.
The spending is seen falling to $2.5bn in 2017. It also said it expected impairments of $3.7bn and $4.7bn due to weaker prices and asset closures.
Profit warning
Amplats said profit would be at least 20 percent lower this year as the world’s biggest producer of platinum metals planned $976 million of asset write-downs and paid for restructuring its operations amid lower prices. Amplats would impair assets by R14.2bn and incur R900m of restructuring costs, the company said.
As a result, headline earnings would be at least R157m lower this year than the R786m posted last year, when its operations were crippled by a five-month strike.
The company was delaying decisions on major capital projects until 2017, it said.
Amplats said the development of the Twickenham mine had been suspended and the operation restructured to reduce cash losses, and the operation had been idled, with 550 employees and contractors leaving the producer.
The company offered voluntary severance packages to all employees at its own mines, resulting in 900 workers departing from Rustenburg, 400 from Union and a further 450 from the company’s retained portfolio. A further 2 500 employees and contractors will exit Bokoni, Amplats’s joint venture with Atlatsa Resources, by December 31.
Kumba cut its 2016 production target by about 28 percent to 26 million tons at its main mine as it forecast prices for its commodity sinking further.
The company said it would reconfigure its Sishen operation, Africa’s biggest mine for the steelmaking ingredient, to allow for more flexibility, reduce risk and lower costs.
The mine will target costs of $30 a ton and a break-even price of $40 a ton next year.
“Our industry is under tremendous pressure with the market now pricing in a more muted trend for the iron ore price over the medium to longer term,” Kumba chief executive Norman Mbazima said.
* With additional reporting by Sechaba ka’Nkosi, Bloomberg and Reuters
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