[miningmx.com] – ANGLO American is to cut its asset base by 60% and drive a further $1bn in capital expenditure reductions by end-2016 as it redoubled its efforts to survive the once-in-a-generation slump in metal prices.
As widely expected, the group has also decided to suspend the dividend saying it would adopt a payout policy when it reinstituted the dividend, possibly in 2017.
Shares in Anglo were 10.5% lower by midday in Johannesburg despite the fact the threat to the dividend had been well flagged.
Mark Cutifani, CEO of Anglo American, said in an investor update today that the group would focus only on priority one assets that would generate cash throughout the cycle.
More details of the portfolio shake-up would be disclosed in February.
“While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action,” said Cutifani in an announcement.
The restructuring extended to Anglo American Platinum (Amplats), in which Anglo American has an 80% stake, which has suspended development of its Twickenham and Tumela 5 project at Amandelbult near Rustenburg.
Amplats also wrote off R3.5bn of its investment in Royal Bafokeng Platinum (RBPlat) and had impaired its investment in Bokoni Mines, which it owns in joint venture with Atlatsa Resources to R1.4bn.
Total write-downs across the group would be between $3.7 to $4.7bn owing to the dramatic slide to lower prices which intensified in the second half of the 2015.
Kumba Iron Ore, in which Anglo American has about a 70% stake, also announced that it intended to optimise its Sishen mine in South Africa’s Northern Cape yet further in an effort to improve its operating margin. The closure of its Thabazimbi operations had already been disclosed to the market
As part of its fresh drive to cut less competitive assets, Anglo had put its phosphates and niobium division up for sale, a development that would take total cash in from divestments to about $4bn.
All in all, a 60% reduction in asset sales would reduce operations under group control to between 20 to 25 mines from about 70 mines when Cutifani set about the restructuring drive in 2013/14.
The group would also further streamline its structures in which the current six operating divisions would be halved to consist of diamonds, industrial metals (platinum group metals and base metals) and bulk commodities (iron ore and coal).
Hands on deck at Anglo American would also be reduced again – to about 50,000 people in total – more than halving the number of employees since the process began when 135,000 worked at Anglo. “Anglo will be a very different company,” said Cutifani. It would share UK offices with De Beers.
Anglo had also set itself a goal of delivering $1.1bn in cost and productivity improvements in 2016 in addition to the $1.6bn target achieved over the last three years. For 2017, some $1bn in cost and productivity improvements would be made assuming spot prices.
Anglo said it would reduce 2015 and 2016 capex by an additional $1bn and would lower 2017 capex to $2.5bn equating to a 55% reduction against 2014 expenditure. The upshot is a $3.7bn in contribution to Anglo’s earnings before interest, tax, depreciation and amortisation by the close of the firm’s 2017 financial year.
Net debt guidance at end 2015 was unchanged at between $13bn to $13.5bn despite commodity price deterioration, said Cutifani.
Before the new round of restructuring took place, Anglo hoped to be cash flow neutral in its 2017 financial year. For 2015, the company would be cash flow negative to the tune of $1bn, said Anglo CFO Rene Medori.
