[miningmx.com] – BALANCE sheet pressure may tempt Anglo American to consider paying a scrip dividend instead of cash, according to industry sources.
“There is some pressure on Anglo’s balance sheet, especially as the sale of its 50% stake in Lafarge Tarmac to Lafarge has not moved as quickly as it would have liked,” an asset manager said. “It may pay the dividend through shares,” he said.
There were questions about Anglo getting the Tarmac deal away after the proposed merger of Lafarge with Holcim hit the skids. “There was talk of a renegotiation [of Anglo’s 50% stake in Tarmac] given the time it is taking to sell the asset,” a source said.
Another analyst agreed it was a possibility. “The balance sheet is very tight and a scrip dividend could save them up to $1bn in cash,” he said. Anglo American declined to comment when asked to verify the speculation.
“I don’t think that the board will discuss the dividend until July to be honest,” said an analyst in Johannesburg. “There’s too much uncertainty.
“But some investors may opt for shares instead of cash and increase their position and minimise cash stress on their investment, ” he said. “If there is an option, it is not a bad thing, I reckon,” he said.
The group’s year-end figures, published on February 13, showed net debt was higher year-on-year and rising. Even assuming the sale of Tarmac for an estimated $1.3bn, net debt is expected to peak at $13.5bn to $14bn.
“The balance sheet will be the single biggest focus area for investors from these results,’ Kieran Daly, an analyst for Macquarie Research said at the time of the Anglo results full-year presentation. “If prices stay at current spot levels the net debt number could be much higher,’ he said.
James Wyatt Tilby, a spokesman for Anglo, told the Wall Street Journal in March that the company could possibly fund its dividend payment this year from debt, but planned to pay dividends from 2016 onwards “… via free cash flow”.
In addition to the time it is taking for Anglo to dispatch Tarmac, the UK group is also waiting on the sale of subsidiary Anglo American Platinum’s (Amplats’) Rustenburg and Union assets given that a trade sale – which it’s thought Anglo would like to do at a book value of R10bn – may be abandoned in favour of a listing.
Amplats said today that it was on track to reach full-year refined production guidance of between 2.3 milion to 2.4 million ounces for its 2015 financial year.
This was following the publication of Anglo’s first quarter production figures in which Amplats increased refined platinum production 50% to 536,000 ounces. The improvement compares to a first quarter in 2014 blighted by industrial action in which output was 357,000 ounces.
“Amplats’ operations are now running at target capacity levels for the second consecutive quarter following the post-strike restart in June last year,” said Edward Sterck, an analyst for BMO in a morning note to clients.
“The company appears well placed to achieve its 2015, production and sales target of 2.4 million oz of platinum,” he said.
Elsewhere in the first quarter production report, copper was reported to have fallen 15% year-on-year to 171,800 tonnes, while Kumba Iron Ore increased output by 7% to 12.2 million tonnes.
“Kumba is undoubtedly feeling the stress of weaker iron ore prices and is likely close to breakeven at current prices,” said Investec Securities.
