[miningmx.com] – ANGLO American said it had sold a 50% stake in cement manufacturer Lafarge Tarmac for $1.6bn – a transaction that will ease pressure on the UK group’s balance sheet, and provide cheer in an otherwise difficult month, perhaps even securing the interim dividend.
Apart from the raft of bad news lately regarding Anglo, the sale price is somewhat higher than the $1.3bn price that had been estimated by analysts last year.
The sale also ticks a box in Anglo’s divestment strategy although the sale of the firm’s non-core platinum assets has attracted controversy as neither a trade sale, nor a partial listing appear to have pleased the market.
Anglo said the sale consideration of Tarmac consisted of $1.38bn (£885m) as per a binding agreement to sell the asset to Lafarge in July 2014 and a further $167m (£107m) in working capital and other adjustments.
“The completion of this transaction brings the aggregate proceeds received by Anglo American for the sale of its Tarmac assets to approximately $2.5bn since 2008,” said Anglo in an announcement.
The proceeds from the sale are likely to help Anglo limit its net debt which was forecast to hit $13bn to $14bn against internal targets of $10bn to $12bn.
Selling assets in the current down-cycle is not an easy process while the divestment from its stake in Tarmac was further hindered after the proposed merger of Lafarge with Holcim hit the skids. “There was talk of a renegotiation [of Anglo’s 50% stake in Tarmac] given the time it is taking to sell the asset,” an analyst told Miningmx.
“The balance sheet will be the single biggest focus area for investors from these results,’ Kieran Daly, an analyst for Macquarie Research said at the time of the Anglo results full-year presentation in February. “If prices stay at current spot levels the net debt number could be much higher,’ he said.
An increase in net debt has the knock-on effect of constraining Anglo’s ability to pay a dividend with Barclays the latest bank to suggest Anglo may cut the payout.
“We remain cautious on Anglo – every division of the business remains under pressure, including the biggest earnings contributor De Beers,” it said in a report on July 15.
It said Kumba had to address its costs and mine plan to sustain positive cash flows while Minas Rio will clearly be heavily lossmaking. The group’s platinum restructuring remained “… an uphill battle”.
“Despite the weakening of the Rand, valuation metrics are not particularly supportive and we believe it is the most likely of the big caps to cut its dividend,” Barclays said.
However, the Tarmac sale could come to the rescue of the interim dividend, at least. “The Tarmac deal at last certainly gives confidence in the interim dividend being bullet proof. Still if things aren’t better by year-end, Cutifani may have to cut the divvy,” said an analyst.
Commenting on the divestment process, Cutifani said it was a matter of balancing the need to meet strategic goals and achieving value for shareholders.
“There is a balance to strike here between speed and securing appropriate value. We have not held back in managing our costs to protect margins, including the assets we are divesting, and continue to do so in a very active way,” he said in an interview with Miningmx in June.
“Investors expect us to achieve reasonable value for these assets – but, at the same time, keep restructuring to support the delivery of our strategic objectives,” he said.
