Anglo American Plans to Slash Dividend
December 03 2015 - 2:20PM
Dow Jones News
LONDON—U. K. mining giant Anglo American PLC plans to slash its
dividend, people familiar with the matter said, in another sign of
the turmoil rippling through the mining industry during a prolonged
slump in commodity prices.
A dividend cut by Anglo, the world's fifth-largest miner by
market value, would be the second from a major mining company in
recent months and comes four month after the miner announced it
would cut 53,000 jobs over the next few years—a third of its
workforce.
The people familiar with the matter said Anglo is likely to
shift to a so-called payout-ratio dividend, in which cash would be
distributed to investors relative to earnings. As earnings rise, so
would dividends, and vice versa.
The timing of a dividend-cut announcement by Anglo is unclear.
It could come as soon as Tuesday's "investor day" in London, when
the company provides updates on how it is handling the commodity
route. It also could wait until early next year when it announces
full-year earnings results.
Dividends have been under pressure in the mining industry. Swiss
trader and miner Glencore PLC, in September said it would suspend
its dividend as it moves to slash debt and fend off looming ratings
downgrades. Analysts have questioned the ability of BHP Billiton
Ltd. to maintain its dividend after a dam break at a mine run by a
joint venture in Brazil caused a deadly flood, but the
Anglo-Australian miner has said it won't change its payout for
now.
Anglo has scrambled to shore up its balance sheet as the company
reels from plunging prices for the metals and gems it digs up. The
rout's cause has been a global market that is flooded with supplies
at the same time that demand from China—the world's biggest
consumer of industrial metals—has been weakening.
The price of iron ore—a steelmaking ingredient that accounts for
more than a quarter of Anglo's earnings before interest and
taxes—fell to $40.30 a ton on Thursday, down 18% since November and
off nearly 80% since its peak in 2011. Anglo has contributed to the
glut, opening a large iron-ore mine in Brazil called Minas Rio in
2014.
That has caused Anglo to burn through cash as its earnings
plummet into the red. The company reported a $3 billion loss for
the first half of 2015.
The company's share price has lost nearly 70% of its value in
2015. It closed at £ 3.87 on Thursday, a new low since it went
public in 1999.
Investors have also worried about Anglo's debt levels. It had
net debt of $13.5 billion as of the end of June, or $11.9 billion
on the closure of its stake in Lafarge Tarmac Holdings Ltd.
buildings material joint venture.
If commodity prices keep sliding, that could put pressure at
Anglo on a key metric credit-ratings firms track—net debt divided
by adjusted earnings—and spark concerns about a potential credit
downgrade. Those same fears pushed Glencore, weighed down by nearly
$30 billion in debt midyear, to disclose plans to shed $10 billion
in debt.
Goldman Sachs Group Inc. analysts estimate a dividend cut by
Anglo could salvage $800 million in cash a year for the company,
which currently distributes about $1 billion a year in
dividends.
Analysts say they also expect Anglo to announce large cost cuts
on Tuesday.
A dividend cut would be the latest move by Anglo to change its
ailing fortunes. Chief Executive Mark Cutifani took the helm in
2013 with a turnaround plan that involved selling off distressed
assets and improving the quality of its diverse mining
operations.
Write to Scott Patterson at scott.patterson@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
December 03, 2015 14:05 ET (19:05 GMT)
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