[miningmx.com] – ANGLO American said it would cut net debt to below $10bn this year and become cash flow positive once it had completed a more profound restructuring of the business to the plan announced in December.
The UK-listed group was heavily criticised last year – and subsequently downgraded by Moody’s Investor Service yesterday – for failing to respond sufficiently well to a decline in metal prices that has surprised the world’s mining bosses in its severity.
Its response today consists of selling assets for up to $4bn – $2bn more than unveiled in December – which would render the group a focused precious minerals and copper business with its feet firmly planted in Africa where it was founded 99 years ago.
Announcing the group’s full-year results today, in which underlying share earnings fell to 0.64 US cents from $1.73 previously, Anglo American CEO, Mark Cutifani, said the group’s iron ore and coal businesses in Brazil, Colombia, Australia and South Africa had been declared non-core.
Following the sale of other non-core assets: manganese, nickel, as well as the niobium and phosphates mines, Anglo would comprise of diamonds, platinum and copper assets.
Not all the businesses would be sold immediately. “We will finish what we set out to do,” Cutifani said of Minas Rio, an iron ore mine in Brazil, which the group would build out – a process that still had an estimated three years to run. Once complete, the mine would be sold, possibly into improved economic conditions.
More immediately, Kumba Iron Ore would either be unbundled or sold down while the company’s domestic and export coal mines in South Africa would also be sold. Cutifani anticipated this process to be largely settled by 2017.
Goldman Sachs said in a morning note that the $3bn to $4bn disposal target was “ambitious” especially given the limited time to sell as well as recent sales prices and the downturn in commodity prices.
The bank also asked whether the ‘new Anglo’ would represent an attractive investment “… assuming successful conclusion of disposals and further cost reductions?”.
Said Cutifani of the proposed asset mix: “This unique combination of assets … will have the advantage of benefiting from the ongoing shift away from infrastructure investment towards consumer-driven demand …”.
In addition to the $10bn net debt target, a medium term target of $6bn had been identified while in the short-term, the group would be cash flow positive to the tune of $400m owing to updated mark to market assumptions on metal prices, as well as productivity and cash cost improvements of $1.9bn, a further modest capital expenditure reduction of $200m, and disposals.
RATING
Asked by Bloomberg TV whether he was on “a short leash” with investors and whether more assets sales may be required, Cutifani said: “I think we are ahead of that curve. We’ve drawn the line and reset the balance sheet”.
By focusing on platinum and diamonds, Anglo had stuck to the “core assets” where it was “a world leader” whilst in copper it had world class assets, he said. “We’ve needed to do this for the last couple of years,” he added.
Investec Securities said that Anglo was selling its iron ore mines – especially those held in its 69.7% owned Kumba Iron Ore – into “a much weaker market” than when the bank first suggested it quit iron ore a year ago.
Said Barclays in a morning note: “It adds to the unprecedented long list of mining asset for sale globally and execution of this plan in such a short space of time is likely to be a challenge”.
That criticism was also aired by Moody’s which said divestments of non-core assets would be difficult to execute in the current environment. It consequently downgraded Anglo’s senior unsecured ratings to Ba3 from Baa3 – a non-investment grade.
Cutifani said in response that his company would “… make sure we give ourselves plenty of room to negotiate value”, and that $4bn was possible “… because of the range of assets we have identified for sale” and recent experience selling mines.
“In the case of Moody’s, we always have to cautious and respectful,” said Cutifani. “They [Moody’s] have made a call across the sector; they have talked about execution. We believe we have set ourselves up to be successful,” he said, adding that he hoped Moody’s would “rapidly review” once the group had executed its plans.
SALES PROGRESS
Cutifani confirmed preliminary discussions had taken place in respect of Kumba Iron Ore and with Eskom and the South African government for the sale of the domestic and export coal mines, as well as with South32 with which Anglo has a joint venture in Samancor, a manganese and chrome producer.
“We have had early conversations with partners and we’ll see where those conversations take us in month or two.
Job cuts would not be increased from the numbers announced in December, said Cutifani. “That’s an important conversation in places like South Africa,” he added. As a result, the job count following the restructuring would be 50,000 down from 128,000 people today. “The 68,000 people will go with the assets being sold,” said Cutifani.
