Anglo American has just announced a fresh round of disposals in a bid to raise an extra $3-4 billion (£2.1-2.8 billion) to survive the commodities slump. Some of its oldest and largest assets are to be hived off in the latest restructuring, which comes just hours after ratings agency Moody's downgraded the miner's debt to junk status. It has grabbed the attention of brave investors, however.
Feeble commodity markets triggered $3.8 billion of impairments in the second half alone, sending the group plunging further into the red with pre-tax losses of $5.5 billion for 2015.
Investors weren't quite sure how to react, with Anglo shares having almost doubled in the past three weeks from 215p to 423p Tuesday. Within two hours, an initial 8% rally turned to an 8% slump before buyers finally broke cover late morning. They clearly feel that Anglo is making the right moves and are prepared to keep backing the miner at near-three-month highs.
"We have made significant progress, albeit in an environment that has been deteriorating at a faster pace," said chief executive Mark Cutifani. "Today we are announcing detailed and wide-ranging measures to sustainably improve cash flows and materially reduce net debt, while focusing on our most competitive assets to create the new Anglo American, positioned to deliver robust profitability and cash flows through the cycle."
Slimming its portfolio from 65 assets in 2013 to 45, Anglo's restructuring is well on track, with $2.1 billion of disposals in 2015, including the sale of its 50% stake in Lafarge Tarmac and the Norte copper assets in Chile. Focusing on diamonds, copper and platinum group metals, Anglo may also sell its Kumba iron ore play and coal mines for the right price.
"These three commodity markets have strong fundamentals over the medium-term, in our view, and form the core of AAL's current valuation," said analysts at VSA Capital. "After months of rumours of potential divestments, we view this as a very positive step."
Underlying cash earnings more-than halved to $2.2 billion in 2015, as positive foreign exchange and cost-cutting tailwinds failed to leave any lasting impact. Around $1.3 billion of savings were found in the 12 months, despite capital commitments of $4 billion. While production volumes jumped 5%, unit costs fell 16% in dollar terms, supporting a $600 million reduction in net debt since the half year to $12.9 billion. Anglos has already suspended the dividend.
Moody's Investors Service slashed Anglo's credit rating to junk status Monday, acknowledging the mammoth restructuring task it has ahead of it amid deteriorating commodity markets.
"While this is no surprise, the reality of the downgrade is not good news for Anglo," explains Investec analysts. "Further downgrades to other mining companies can be expected in the days to come and our Investec Mining Clock remains in 'watch and wait' territory as we assess the effects of any further debt downgrades in the sector.
"Recent share price rallies across the mining sector fly in the face of fundamentals in our view and the outlook for commodities remains cloudy at best. The recent resumed strength in the US$ is the biggest cloud on the horizon."
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