Anglo American restructuring plan is bold, says Canaccord

Anglo American’s restructuring plan is bolder than previously outlined in December, Canaccord Genuity said, but substantial risks remain.

Chief executive Mark Cutifani on Tuesday announced a new focus on diamonds, platinum group metals and copper, with the total target for the disposals increased to $5-6bn by the end of 2016, with $3-4bn targeted from selling off its iron ore, coal and other bulk commodities this year.

The announcement came as the group reported a pre-tax loss of $5.5bn after $3.8bn of write-downs since the half year.

Underlying earnings before interest, tax, depreciation and amortisation of $4.85bn was down 38% but beat City forecasts, while underlying earnings per share came in at $0.64 per share, down by almost two thirds but again ahead of consensus estimates.

Having been downgraded to junk on Monday evening by Moody's, Anglo also set a target net debt-to-EBITDA ratio of 2.5 times as it aims to drag its bonds back to an investment grade credit rating.

Canaccord Genuity issued the company a ‘hold’ rating and target price of 350p, saying that results were broadly in line with expectations but the focus was on the restructuring plan.

“Anglo American will likely be seen as a forced seller and a price-taker by potential asset acquirers, and the company will need to tread carefully with government and labour, particularly in South Africa, where it plans to exit a substantial asset base, but retain diamond and platinum interests,” said analyst Nick Hatch.

“Speed is of the essence, however, particularly in the context of Moody’s downgrading of Anglo’s credit rating from investment to junk status yesterday. So a bold plan, but there remains substantial implementation risk.”