Did Cutifani’s comeback go far enough?

Anglo American CEO Mark Cutifani.

AS FAR AS comebacks go, Anglo American’s full-year results presentation last month was about as good as it was ever going to get for the firm’s beleaguered CEO, Mark Cutifani.

After a mauling by sceptical analysts in December, following an ‘investor update’, February’s performance put more meat on the bone regarding the group’s restructuring programme even if Cutifani didn’t bow to pressure to issue shares in order to shore up the balance sheet.

He unveiled $2bn more in disposals than planned in December – taking the total value of targeted asset sales to $4bn – and said the group would be cash flow positive to the tune of $400m. This is a complete turnaround to the investor update where the general expectation was that Anglo would see a cash outflow of $1bn in its 2016 financial year.

The difference in the movement of cash is some $1.8bn in further cost savings, the disposals, and productivity improvements – each employee is working 27% better – as well as a little kick-up in commodity prices, and the compensatory effects of weakness of the rand and peso against the dollar.

Yet concerns persist among analysts who wonder whether it would be better for Cutifani to just sanction a share issue in order to lower the net debt to the levels Anglo has flagged which is $10bn this year, and $6bn in the medium term.

The worry is that buyers will be hard to find for all the assets Anglo wants to get away which includes its South African and Australian coal mines, its nickel assets and its share of the Samancor joint venture, a manganese asset, which has South32 as the other partner.

Cutifani also confirmed recent speculation that Anglo would quit its iron ore assets, including Kumba Iron Ore, although the sale of this asset is not part of the forecast $4bn disposal target.

“The big question remains whether or not the company will raise equity,” said CIBC Capital Markets in a note. “The company seems to think that the combination of cost savings, capex reduction and disposals should preclude an equity raise, but in the absence of successful asset sales that may become a necessity,” it added.

Said another UK analyst: “As befits Anglo’s recent, disappointing history, and the tough commodity backdrop, we still question if it can deliver, at least in a sensible time frame”.

“While the strategic announcements are more aggressive and provide greater clarity around execution than at the investor day in December, the fact remains that given the current pricing environment and strained balance sheets across the sector, executing a divestment stategy of this nature and scale is likely to ge challenging,” said Macquarie Bank in its note on the results.

This ability to sell so many assets at one time was part of the rationale for the downgrade to Anglo’s credit rating applied by Moody’s Investor Service on the eve of the firm’s results presentation. It took the same view that Anglo would not be able to sell down its assets and deleverage its balance sheet as it planned.

There is evidence to support this difficulty expressed by Moody’s and analysts.

About half of the group’s planned platinum asset sales – the Union section of its Rustenburg operations, and its platinum joint ventures with Atlatsa Resources and Lonmin – are still not complete even though their divestment has been in the market for well over a year.

Cutifani’s riposte to this criticism is that running the disposal process in parallel allows the group the time and flexibility to pick its transactions. He also argues Anglo has a good track-record on its side.

The group sold $1.9bn worth of assets in its 2015 financial year including its 50% stake in its aggregates business, Tarmac, for $1.6bn in July, some $300m more than expected, as well the Mantoverde and Mantos Blancos copper mines in Chile for another $300m.

In January, it sold the Callide thermal coal mine in Australia and later this year it ought to have all but completed the $280m sale of Rustenburg Platinum Mines to Sibanye Gold.

“We’re getting all sorts of interest from all sorts of players and we’re encouraging different players to become interested,” said Cutifani.

“Tarmac, Callide, our copper assets, the Rustenburg mines … each deal has been structured to the asset and their circumstance, and we’re happy with the value. By mid-year, we will have drawn a line under our first phase of disposals and we will have exceeded the bottom end of the target range,” said Cutifani.

“Every other asset will require that same consideration and we’ve got no doubt we are going to have to say ‘no’ [to some offers]. But from what I’ve seen so far, there will be quite a few assets where we’ll say ‘yes’,” he said.