Painful changes at the miners

Mark Cutifani: making the tough calls?

Mining giant Anglo American overtook commodities giant Glencore as the worst performing resources stock in the FTSE 100 this year, after Tuesday’s announcement of a “radical portfolio restructuring” that could see the closure of the majority of its mines. Anglo announced 85,000 job cuts globally, equal to the entire headcount at BHP Billiton, the world’s largest miner.

It also scrapped its dividend, which had been widely anticipated, and announced plans to sell the group’s niobium and phosphates business. The share price has plunged by more than 20% since the plans were announced, bringing Anglo’s losses for the year to 76% by mid-week.

What the columnists said

“Stronger for longer” was the catchphrase during the commodities super-cycle, said Barry Fitzgerald in The Australian, but “lower for longer” now seems more apt. This looks like capitulation for the mining sector. Anglo is planning to shrink from 55 operations to 20. Chief executive Mark Cutifani told investors that Anglo is not running a fire sale, but in reality he has already auctioned off most of its saleable assets and is now facing the prospect of mass mine closures.

Meanwhile, with the commodity price plunge still showing little sign of reversing, short sellers have been piling into both Anglo American and Glencore. “You go for anybody that’s leveraged,” said Bernstein analyst Paul Gait. “You look at the balance sheets and go: Glencore, Anglo American, boom, boom, job done.”

“Anglo can take out its high-cost production and restructure all it wants,” fund manager Wayne McCurrie told Bloomberg, “but essentially its fortunes don’t change until resource prices go up.” Scrapping the dividend was “inevitable”, McCurrie said. Yet even after scrapping the dividend and closing its high-cost mines, Anglo will still be burning around $1.7bn each year at current commodity prices, according to HSBC.

And at a time when no one else is keen on mining assets, “Buyers be where?” said Lex in the FT. At Anglo’s half-year report, platinum traded at $1,160 per ounce. It’s now closer to $860. Spot iron-ore prices are down from $60 a tonne to below $40. “Should this latest shift endure, cash will flow ever faster from the business.” Might Anglo need to raise cash from shareholders? “Cutifani claimed on Tuesday to be making the tough calls. Until he makes a call on his investors, this is debatable.”

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