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Anglo American loss widens on write-downs

February 17
6:07 AM 2016

Anglo American Plc has reported a pre-tax loss of $5.5 billion (£3.8bln) for 2015 year. The slump in commodities market and booking down of write-downs further widened the losses. Anglo American is charting future plans with a focus on copper, platinum and diamonds.

The loss in 2015 was more than twice the loss incurred in 2014 for Anglo American. The UK-listed miner took charges of $3.8bln due to drop in commodity prices.   Moody's has downgraded Anglo American's debt rating to junk status.

BBC reports that Anglo American is planning to sell assets worth $3bln to $4bln to strengthen its financial position. The list of assets to be put on the block includes Kumba Iron Ore (KIO), Africa's biggest miner of the steel making ingredient. Company's Chief Executive Mark Cutifani attributes the present challenges to global economy slowdown.

Meanwhile, Moody's Investor Service, a global rating agency, on Monday lowered credit rating on Anglo American to junk status. The latest downgrading of debt credit indicates deterioration in commodities market. Now, the doubts are spreading on when will the company reduce debt levels. 

Moody's doesn't expect Anglo American to generate operating cash flows, which are needed for it to reduce organic debt in next two years. The negative outlook is confirming uncertainty about the company's financial performance. Anglo American Inc's recover will be dependent upon the how well it'll execute restructuring plan, as reported by The Globe And Mail.

Anglo American Plc is reviewing the proposal on selling Kumba Iron Ore and will execute the plan at an appropriate time. A potential spinoff plan is also under active consideration. Cutifani said: "Anglo American will sell its coal mining operations as well at the right time for the right value."

The impairments of $5.7 bln reflect the fallout of the sluggish prices on asset values. Anglo American's stock price rose over six percent in London market later eased one percent and was trading at 389p. The shares were moving in wide range of fluctuation in recent times. The stock price fell over two-thirds during the past 12 months. 

Anglo American Inc has announced several measures to make it a free cash flow positive in 2016. The miner is also targeting asset sales in the range of $3bln-$4bln this year as against the previous plan of $2 billion asset sales in 2016 and next. Anglo American is hoping to achieve $1.9 billion earnings before interest and taxes (EBIT) for 2016, according to The Wall Street Journal (WSJ).

Despite better than forecast results, the stock price couldn't rise as the underlying performance was not encouraging. With an object of saving cash reserves, Anglo American didn't announce dividend payout to shareholders. 

Anglo American has decided to focus on copper, platinum and diamonds. Anglo American's diamond subsidiary De Beers is planning to cut 189 positions in South Africa. De Beers is implementing a cost cutting plan following the easing demand for gems.

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