Anglo Hastens Retreat From Coal, Iron Ore as Losses Double

Markets React to Anglo American
  • Miner considering exit of Kumba Iron Ore, including spinoff
  • Planning to raise as much as $4 billion by selling mines

Anglo American Plc is speeding up plans to pull out of coal and iron ore after losses bled into a fourth year and the company became the first major London-based miner to be rated junk.

Losses doubled to $5.62 billion in 2015 as commodity prices plunged, pressuring Anglo’s balance sheet already weighed down by $12.9 billion in debt. The miner is trying to engineer a turnaround focusing on its best mines that produce diamonds, platinum and copper, while shunning bulk commodities. Anglo wants to raise $4 billion from selling mines and reduce net debt to less than $10 billion this year.

“We’re certainly under pressure -- we’ve got too much debt,” Chief Executive Officer Mark Cutifani said in an interview on Bloomberg Television. “It’s a matter of stripping us back to the core, rebuilding the base and making sure that we are fit to go forward.”

Junk Rating

Anglo, with mines around the world producing everything from diamonds to iron ore and nickel, lost three-quarters of its market value last year as metal prices sank to a six-year low. Its credit rating was cut to junk yesterday by Moody’s Investors Service, which said the company will have a harder time paying down debt given the ongoing slide in raw materials. 

The stock rose 1.3 percent to close at 397.95 pence in London, rebounding from an earlier decline of as much as 8.4 percent. Speculation that the worst is over sent Anglo’s shares up about 80 percent in the past month.

“Can, when and at what value will Anglo achieve the asset sales?” analysts at Goldman Sachs Group Inc. said in a note to investors today. Its goal is “ambitious in our view, particularly given the limited time to sell, recent sale prices achieved and the downturn in commodity prices.”

Goldman was not the only bank to question whether the company could sell so many mines in such a tough environment. Bank of America Corp. asked if the market trusted the management team to execute the sale, while Citigroup Inc. said the process was coming too late.

To preserve cash, Anglo has already promised to reduce the number of mines it owns, cut staffing and stop paying a dividend. The announcements today show the company is accelerating debt-reduction plans and taking a harder look at businesses that are losing money. 

Earnings Report

Excluding some items, Anglo earned 64 cents a share, compared with $1.73 a share in 2014. The average estimate from a Bloomberg survey of analysts was 63 cents a share. Full-year sales fell 26 percent to $23 billion.

In the medium term, the company wants to reduce its debt to $6 billion, about half the current level, and return to an investment-grade rating. The Moody’s downgrade has no impact on the business, Chief Financial Officer Rene Medori said on a call after the results were announced. He reiterated that Anglo has no plans to raise money by selling new shares.

Anglo’s retreat from iron ore marks a change of strategy after the company spent $14 billion to buy and build the Minas-Rio mine in Brazil in the late 2000s. Iron ore has been one of the worst commodities, with prices plunging in the past three years as miners flooded the market with low-cost supply while China’s demand for steel weakened.

Kumba Exit?

The company will consider options to exit its Kumba iron-ore operations in South Africa, including a spinoff, and try to sell Moranbah and Grosvenor coal mines in Australia. Anglo’s nickel business is also for sale, it said in a statement Tuesday.

Anglo expects to sell 10 assets by the first half of 2016 and because there are so many up for sale, it wouldn’t be forced to accept any offer, Cutifani said on a conference call.

A sale may not be immediate for the Cerrejon coal mine in Colombia and Minas-Rio iron-ore operation in Brazil, Cutifani said. He plans to speak to partners Glencore Plc and BHP Billiton Ltd. about a possible sale of Cerrejon. The company wants to increase production at Minas-Rio before a sale, which might take two to three years.

“We’re not pressed to sell any single asset for any number,” Cutifani said. “The back of the work we’ve outlined will be broken in 2016.”

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