Anglo’s Year of the Turnaround Puts Debt Targets Within Reach

  • Shares gain 5.9% in London, adding to a 183% rally this year
  • Anglo is selling assets and focusing on copper, diamonds

If last year will be remembered as Anglo American Plc’s near-death experience from a crushing debt load and commodities collapse, this one is turning out to be all about recovery.

Anglo, which heaped on debt when metals prices were soaring, said it’s now on track to meet targets. When it completes the sale of its niobium and phosphates business, net debt will stand at $10.3 billion -- putting it within reach of a promise for debt below $10 billion by the end of the year.

Excluding some items, earnings per share declined to 54 cents, beating the 26-cent average of six analysts’ estimates compiled by Bloomberg. The stock rose 5.9 percent as of 8:45 a.m. in London, reaching the highest in a year.

“There has still remained a good deal of skepticism in the market regarding Anglo American’s turnaround plan,” Paul Gait, an analyst at Sanford C. Bernstein Ltd., said in a note to investors. “Today’s results should give incremental confidence that the plan is progressing well.”

To survive the current era of lower commodity prices, Anglo is seeking to reshape its business by focusing on the best assets and ditching the money-losing ones. The century-old firm plans to sell more than half of its mines and exit iron ore and coal to focus on diamonds, platinum and copper.

It’s a turnaround for the company, which has seen its share price tumble for five years, capped off with a 75 percent plunge in 2015. Losses driven by lower commodities prices and a heavy debt load led investors to question the company’s viability last year. In 2016, the stock is up 183 percent, making it the best performer in the U.K.’s FTSE 100 Index.

Anglo, once South Africa’s biggest company, has said it will raise more than $3 billion from asset sales this year to reduce its borrowings. In April, the miner agreed to sell its Brazilian niobium and phosphate unit to China Molybdenum Co. for $1.5 billion and is in talks to offload coal mines in Australia.

“We’re going to keep the pressure on,” Chief Executive Officer Mark Cutifani said on a call with reporters. “We’re sticking with the strategy.”

Net debt fell to $11.7 billion by the end of the first-half, compared with $12.9 billion in December, the company reported.

Underlying earnings for the six months through June dropped to $698 million from $904 million a year earlier. The company reported a first-half net loss of $813 million. Sales fell 20 percent to $10.6 billion.

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