Painful changes at the miners

Mining company Anglo American scrapped its dividend after overtaking commodities giant Glencore as the worst-performing stock in the FTSE 100 this year.

772-Mark-Cutifani-634

Mark Cutifani: making the tough calls?

Mining giant Anglo American overtook commodities giant Glencore as the worst performing resources stock in the FTSE 100 this year, after Tuesday's announcement of a "radical portfolio restructuring" that could see the closure of the majority of its mines. Anglo announced 85,000 job cuts globally, equal to the entire headcount at BHP Billiton, the world's largest miner.

It also scrapped its dividend, which had been widely anticipated, and announced plans to sell the group's niobium and phosphates business. The share price has plunged by more than 20% since the plans were announced, bringing Anglo's losses for the year to 76% by mid-week.

What the columnists said

Meanwhile, with the commodity price plunge still showing little sign of reversing, short sellers have been piling into both Anglo American and Glencore. "You go for anybody that's leveraged," said Bernstein analyst Paul Gait. "You look at the balance sheets and go: Glencore, Anglo American, boom, boom, job done."

"Anglo can take out its high-cost production and restructure all it wants," fund manager Wayne McCurrie told Bloomberg, "but essentially its fortunes don't change until resource prices go up." Scrapping the dividend was "inevitable", McCurrie said. Yet even after scrapping the dividend and closing its high-cost mines, Anglo will still be burning around $1.7bn each year at current commodity prices, according to HSBC.

And at a time when no one else is keen on mining assets, "Buyers be where?" said Lex in the FT. At Anglo's half-year report, platinum traded at $1,160 per ounce. It's now closer to $860. Spot iron-ore prices are down from $60 a tonne to below $40. "Should this latest shift endure, cash will flow ever faster from the business." Might Anglo need to raise cash from shareholders? "Cutifani claimed on Tuesday to be making the tough calls. Until he makes a call on his investors, this is debatable."

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