Global miner Anglo American (LON:AAL) may have to cut its dividend soon as current commodity prices seem to be leaving management little choice but to focus on balance-sheet preservation in order to navigate a sustained downturn.
The decision, likely to be announced while publishing its first-half results at the end of the month, would be the first time since 2009 that the miner has to cut dividends, Bloomberg reports.
“The picture as currently presented is not sustainable. Something has got to give: either commodities prices come up or they’ll have to cut investment, jobs or their dividend,” a banking source told Reuters earlier this month.
Anglo, which employs over 150,000 staff globally, is undergoing a major restructuring aimed to improve its balance sheet. The plan has included cutting jobs and putting assets up for sale, from copper mines in Chile to Australian coal assets and its platinum business in South Africa.
Unlike its peers, the group has not introduced major cuts to capital expenditure, at least not in 2014, and its net debt is not expected to peak until later this year at up to $14 billion.
Tough environment, tough decisions
When Cutifani took over as chief executive in 2013, he criticized a culture of missed targets and underperformance. More than two years on, the former boss at AngloGold Ashanti, has improved Anglo’s operating capability, but the company’s value is still in the pits.
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 adjust to a commodity price rout that has hit profits.
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 Cutifani was appointed, 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.