Anglo American slumps on HSBC downgrade

HSBC said that before further capex cuts, Anglo would likely burn at least $2.7bn in 2016 on spot prices to maintain the dividend.

“We see high likelihood of a zeroed dividend (now in our numbers), which saves $1.1bn cash annually,” it said.

Should Anglo reinstate the dividend at a later stage, a payout ratio – with provision for specials – is more prudent.

HSBC said further cost cuts are likely at the 8 December update, but the bank questioned whether this would be enough.

“We see scope for capex to be reduced to around $2.7bn post 2016 and $3.3bn in 2016 (current guidance $3.6-3.9bn),” it said.

HSBC reckons corporate costs and overheads are the key area of viable opex cuts, although not a new target area. Any further cost cut efforts at operations will only go some way to offset more than 5% South African inflation.

The bank estimates that Anglo will still burn $1.6bn in annual cash flow post expected opex, capex and divi cuts on spot prices.

At 0956 GMT, Anglo shares were down 6.4% at 423.20p.