Anglo American to write down up to $4bn on weak commodity prices

Anglo American to write down up to $4bn on weak commodity prices

Off-road vehicles transport iron ore from Minas Rio. (Image courtesy of Anglo American)

Global miner Anglo American (LON:AAL) expects to slash up to $4 billion from the value of its flagship Minas-Rio iron ore project in Brazil and Australian coal assets, as a lasting slump in commodity prices continue to take a toll in the company and the global industry.

"The first six months of 2015 have seen significant further weakness and ongoing volatility in the prices of the bulk commodities, particularly iron ore and metallurgical coal," the company said in a second-quarter production statement.

The company’s shares hit a near 13-year low last week as a result of the continued commodities price rout triggered by weaker-than-expected Chinese economic growth and a supply glut in many of the commodities it produces.

Anglo is also said to be mulling a dividend cut and the dismissal of between 5% and 20% of its employees, likely to be announced while publishing its first-half results next week.

The looming impairment of Minas-Rio, acquired in 2007, comes just months after a $3.5bn write-down of its value. There was also a $4bn charge in 2013.

Currently, the group is worth almost US$19 billion (£12.14) after its stock has fallen over 42% in the last 12 months. And while investors have been being somehow patient with the firm’s lack of progress on promised asset sales, they are now demanding further initiatives to balance the coffers.

For Hanre Rossouw, who helps manage $120 billion of assets including Anglo shares at Investec Asset Management in Cape Town, shareholders may be asking too much. Investors seem to forget that when Mark Cutifani was appointed as CEO in 2013, his mandate was to fix the operations, he told Bloomberg. Since then, “Anglo has gone from continually missing operational targets to consistently beating them,” Rossouw said.

Anglo, the fifth-biggest diversified global mining group by stock market capitalisation, is not the only diversified miner that has made clear how hard weak prices are damaging the industry.

BHP Billiton (ASX, NYSE:BHP) (LON:BLT), the world’s No. 1 miner by market value, said on Wednesday it would take a $2.8 billion impairment on its U.S. shale operations, the third write-down in three years.