[miningmx.com] – THE world’s largest mining companies were expected to downgrade their progressive dividend policies in order to conserve cash and their credit ratings, analysts have said in reports.
Macquarie Bank said in a report dated November 25 that in order to maintain its A credit rating BHP Billiton, would have to downgrade its dividend policy, whilst Rio Tinto would have to consider similar steps to preserve its rating.
“At spot prices, cuts to BHP’s progressive dividend policy seem inevitable … as BHP would be required to reduce net debt substantially to maintain its A credit rating.
“Likewise Rio [Tinto] would also be required to deleverage under S&P’s (Standard & Poor’s) methodology, although its credit rating still appears secure under Moody’s,” it said.
Goldman Sachs believed that Anglo would staunch cash outflow of up to $800m, based on its earnings calculation for the UK group’s 2015 financial year, were it to switch its dividend policy from progressive to a ratio of earnings.
“We expect Anglo to change its dividend policy from progressive to a payout-based regime,” said Goldman Sachs ahead of Anglo’s investor day, scheduled for December 8.
It was unlikely, though, that the UK group would tap shareholders for cash through an equity issue. “We believe the key message is liquidity in cash on hand combined with undrawn facilities can cover near-term refinancing commitments,” said Goldman Sachs.
Said Anglo spokesman, Pranill Ramchander: “Clearly, we cannot comment and dividend discussions will be had by the board at the usual time”.
Goldman Sachs said pressure on Anglo, and other mining companies, would be sustained during 2016. “We believe that 2016 will be another year of market-relative under-performance, as we see downside in most commodity prices versus spot and consensus.”
Of the four top mining companies covered in a recent report by Barclays Capital, Anglo was given the heaviest earnings down-grade: a fall of 46% compared with Rio Tinto (-32%), BHP Billiton (-31%) and Glencore, the earnigns of which would be 2% higher.
“Looking forward, it is hard to see what might pull the sector out of its tailspin,” said Barclays Capital. “A demand shock seems unlikely given the state of China’s economy,” it added.
Barclays Capital said in October that Anglo’s dividend was at risk and that the company might even resort to paying it out of debt.
