Anglo American reveals restructuring as losses mount

Anglo American posted a pre-tax loss of $5.5bn after $3.8bn of write-downs since the half year, as it unveiled its promised "radical" overhaul of the business to counter crumbling commodity prices.

Chief executive Mark Cutifani announced a new focus on diamonds, platinum 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 Australian told Bloomberg television the company did not need a rights issue for what is a "self-help story", adding that he expected 10 asset sales by the end of the first half, mentioning as an example a current shortlist of six bidders for a niobium/phosphate sale in Brazil flagged at roughly $1bn.

The final dividend was suspended, as announced in December, and will not be resumed until it is felt appropriate, while for the coming year $1.9bn net benefits to EBIT have been pencilled in, with a 50% cut of central costs and 25% of capex to under $3bn will aim to keep net debt below $10bn by year-end and below $6bn in the medium term.

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.

In a U-turn from December, nickel and metallurgical coal are now no longer core, with new moves launched to dispose of nickel, niobium and phosphates, with disposal processes for the Moranbah and Grosvenor metallurgical coal assets already under way, with "further progress" made on other previously announced disposal processes, including platinum and thermal and metallurgical coal operations in South Africa and Australia.

Cutifani said exit options for Kumba iron ore were also being examined, including a possible spin-out, while the Minas-Rio iron ore's options will be assessed after three more years under the current project that aims to turn it cashflow positive in 2016.

The new three-pronged focus is predicted to see the workforce cut 60% from 11,500 to fewer than 5,000, but Cutifani was careful to stress that “future performance will not be jeopardised for short term cash flow gains”. The total group headcount including direct and indirect businesses will be cut from the huge 128,000 at the end of 2015 to nearer 50,000.

2015 financials

For 2015, with the FTSE 100 miner's commodity basket price down 24% on 2014, attributable losses mushroomed to $5.6bn, more than double the previous year, on revenue down by close to a third to $23bn.

Consensus forecasts were for revenue of $20.56bn and a net loss of $6.1bn

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.

With the final dividend suspended, only the half-time $0.32 payment is recorded for the year.

Net debt was held flat at $12.9bn, with $14.8bn of liquidity from undrawn facilities and cash maintained, albeit Anglo faces near-term debt maturities of $1.6bn in 2016 and $2.6bn in 2017.

Analyst reaction

Analyst Yuen Low at Shore Capital said the financials were "dire, if slightly ahead of expectations" and on the supposedly radical restructuring, there was not as much detail as he would have liked "and we would preferred to see announcements of actual disposals rather than more disposal plans".

He noted that bulk commodities had been moved out of the core sphere, contrary to previous guidance, though he was disappointed that "white elephant" of Minas-Rio iron ore will remain for at least three years, but speculated the "sacred cow" of the Atlatsa PGM joint venture might be added to the chopping block.

RBC Capital Markets said most of the headline numbers beat its expectations, but now the company needed to "walk the walk" with its aims for a slimmer portfolio to deliver a much-needed debt reduction.

"It is possible the change may make Anglo proportionately more exposed to South Africa as Australian and some South American assets are targeted for sale, though Kumba will offset this somewhat," analyst Des Kilalea wrote.

"Timing is the key now with the Minas-Rio disposal a three-year exercise and achieving good prices for others not easy at present. But it is positive though delivery may be a drawn-out affair."

Anglo shares initially spiked to a two-month high of nearly 420p before retreating to 395p by 0820 GMT, for a rise on the morning of 0.5%.