[miningmx.com] – ANGLO American CEO, Mark Cutifani, fenced with analysts today as to why the group had decided against raising cash through an equity issue in order to protect the business.
He also made the eye-opening acknowledgements that the group’s long-standing exposure to South Africa would decline and that Minas Rio – the Brazilian iron ore mine that represents for some the apotheosis of misspent capital in the mining sector – was not considered a priority one asset.
“We have got the liquidity position in place; we continue to improve performance and we have made the dividend decision,” said Cutifani in response to a question that asked whether the market was more concerned about Anglo’s solvency than its liquidity.
Cutifani has staked his strategy on lowering net debt by making every asset owned by the firm cash generative. Three analysts posed the question, though, whether it might be better to issue shares now while it could rather than when it had to, especially were the markets to deteriorate further and/or Anglo’s strategy failed.
Cutifani said that in his view the market was most concerned about the rate of restructuring rather than questioning the group’s strategic premise. “The market said we must get there [restructuring] a lot quicker, but they like the strategy,” he said.
“They want Anglo to be more aggressive in getting there. This will be a function of how we can get debt down which is the issue the market is concerned about”. Anglo CFO, Renee Medori, reset Anglo’s net debt target to $10bn or below.
Barclays Capital said that its first impressions of Anglo’s investor update was of “… underwhelming additional restructuring”. It added, however, that the group could “hide behind the liquidity screens” in the balance sheet prior to the recent downturn as net debt guidance for 2015 remained unchanged at between $13bn and $13.5bn.
“The key debate in the market looks set to be – is it enough to turn Anglo into a cash-generating entity?,” said Goldman Sachs in its first take comment on the cuts to unprofitable production.
In any event, shares in Anglo American were under attack today despite the company having long flagged its intention to cut or suspend the dividend (it suspended it for the second half of 2015 and for the whole of the 2016 financial year).
Cutifani also imposed new targets in lowering capital spending and unveiled more a aggressive and swifter approach to closing and selling assets.
All in all, Anglo American could reduce its portfolio of mines to between 20 to 25 assets compared to the 70 mines which Cutifani was first handed when he was appointed CEO of the UK listed group in May 2013.
He had initially earmarked an asset reduction to 55 mines, but he now considered this target to be insufficient owing to continued downward pressure on metals prices, especially in the second half of this year.
As part of the accelerated restructuring process, Anglo has had to tighten its definition of continuing assets including putting Minas Rio, an iron ore mine which it has impaired for nearly $9bn, on the front line of a possible sale or closure.
“Our view is that it has to be core [to keep it]. At this point in time it [Minas Rio] will probably struggle,” said Cutifani.
“It is in a tough commodity against very aggressive competition. It is not in the front line of assets that we consider priority one now. It has the potential to do better, but it will take an additional 12 months,” he said.
Anglo American announced on November 13 that Paulo Castellari, head of Anglo’s iron ore business in Brazil, would step down by year-end. It made no mention of who would replace Castellari.
Sandy McGregor, a fund manager for Allan Gray, believed that the most heinous investment of the five-year period of capital misallocation in the mining sector was in Minas Rio. “I would choose Minas Rio as the most misguided investment,” he said.
Anglo American Platinum (Amplats) also issued a statement in which it said it would suspend a number of projects and suffer impairments. Given that Anglo’s domestic coal mines were also to be sold, this raised the prospect of South Africa figuring less as a geography in Anglo’s overall portfolio.
Said Cutifani: “There’s no doubt that as we restructure, we reduce the activities on a proportional basis in South Africa. But we will articulate more about that in February [during Anglo American’s full-year results presentation]”.
Most of Amplats’ mines were losing cash at the current platinum price of $858/oz except for Mogalakwena described by Cutifani as doing “exceptionally well”.
He said the ability of Anglo to restructure the mine last year proved that the South African government was responsive to restructuring provided the correct procedures were followed.
