[miningmx.com] – ANGLO American maintained its interim dividend year-on-year at 32 cents per share, but announced a brutal $500m cost-cutting drive of which $300m would be derived through 6,000 job cuts equal to 46% of the organisation’s total support head count.
“Now is the right time to accelerate the right-sizing of the organisation that supports the future business,” said Mark Cutifani, CEO of Anglo American in notes to the group’s interim figures today in which underlying share earnings for the six months ended June 30 came in 30% lower to 70 US cents/share.
“We are targeting a $500m total cost saving, of which $300m will be realised from our ongoing core business, through the reduction of 6,000 overhead and other indirect roles, a 46% decrease,” he said.
The job losses would include businesses that Anglo had identified for sale which would generate $3bn in cash of which $1.7bn had already been booked following the sale of its 50% stake in cement manufacturer, Lafarge Tarmac, to Lafarge.
Including the sale of Lafarge Tarmac, which was after Anglo American’s half-year close, the group’s net debt came in at $11.9bn. This approaches its long-term net debt target of between $10bn to $12bn.
Of the eight commodity groups that Anglo American has an interest, it was the iron ore and manganese, and De Beers which suffered the greatest declines in underlying earnings year-on-year down 58.5% and 25% respectively.
In contrast, Anglo American Platinum (Amplats) recorded a $273m turnaround in positive earnings before interest and taxation (EBIT) contribution year-on-year.
Prices declined in every category year-on-year, however, from 8% lower in thermal coal to a 20% reduction in nickel. Metallurgical coal and iron ore were both 14% weaker whilst platinum and copper were 11% and 10% weaker respectively.
Given the recent liquidations in metals post the interim period, in which iron ore lost 25% in a single day before recovering some ground, the impact of unhelpful commodity prices is likely to weigh on Anglo American’s second period.
“We didn’t expect the rout [in commodity prices] to be so enforced,” said Cutifani addressing analysts in London today. “The next six months will be even tougher,” he said.
The outcome was a 36% decline in underlying EBIT to $1.9bn – a $1bn decline year-on-year – of which commodity price weakness comprised $1.9bn of the decline before operating savings ‘added back’ $800m.
Cutting head office staff was flagged by Cutifani last month and reflects demands by shareholders that mining firms cut more aggressively.
“The focus of the results discussion will be increased cost-reduction targets within the turnaround in an attempt to boost returns,” said Goldman Sachs in a morning report.
“The degree to which investors find this new approach compelling – i.e. big enough, realistic and timely – will determine how the shares trade post results, in our view,” it added.
Cutifani said the organisation’s numbers would fall from 13,000 souls to 7,000 in two years whilst the group as a whole would see a reduction from 152,000 today – itself 7% lower than in 2013 – to 98,000.
The cutbacks to staff in office functions, both in the regional centres and on-mine, is in addition to operational cutbacks which were expected to deliver $1.2bn to EBIT for the next 18 months over the $1.7bn to EBIT delivered to date. Some $1bn in capital expenditure reductions was also scheduled by the end of 2016.
“We are making fundamental changes to transform Anglo American – operationally, structurally and culturally – into a fit for purpose organisation with an enhanced resource endowment,” he said.
Commenting on the prospects for a full-year dividend, Cutifani said the group intended to stock with its dividend policy. “We will continue to look at conditions. We have hit cash flow targets and we did better on the net debt than people thought, but we can’t yet anticipate the full-year dividend,” he said.
The dividend would not be supported by asset sales, however.”We will not sell assets that are core to the company to support the dividend,” said Cutifani who added that he was confident some $1.3bn which represents the balance of non-core assets identified but not consummated would be completed in time.
“We are very confident about selling those $3bn of assets. We have got the flexibility to be opportunistic,” he said.
Cutifani was less forthcoming about progress with the sale of the Rustenburg and Union sections owned by Amplats. Asked if the prospect of an IPO had diminished amid a likely trade-sale, Cutifani told an analyst: “We have got both options open to us. I will not say which way we are going with it”.
