Anglo faces headwinds in keeping restructuring on track
Anglo has been forced to accelerate its restructuring after successfully holding off a bid from BHP, the world’s biggest miner.
Global credit rating firm Standard and Poor’s (S&P) downgraded Wednesday its outlook on Anglo American PLC (LON:AAL) to negative from stable as a result of growing concerns about the effects of South Africa’s mining strikes on the company’s mining operations and on the wider economy.
“Our view is that Anglo American’s business risk profile is weakening because of rising South African country risks,” S&P said in a statement. The announcement followed last week’s downgrade of South Africa’s sovereign-debt rating to triple-B from triple-B-plus with a negative outlook.
“In our view, the strikes in South Africa’s mining sector will likely feed into the political debate in the run-up to the 2014 elections, which may increase uncertainties related to the African National Congress’ future policy framework,” S&P said last Friday as quoted by Business Report.
The ratings agency also said it expected that country’s underlying social tensions would increase spending pressures and reduce fiscal flexibility for South Africa’s government.
About Anglo American, S&P said:
Anglo American’s intermediate financial risk includes a financial policy focused on moderate debt and robust liquidity with a long-term debt maturity profile. That said, we expect Anglo American’s current moderate debt to rise in the coming years, due to substantial capital expenditures (capex) resulting in negative free cash flow under our 2013 pricing assumptions. Other constraints for its financial profile include volatile cash flows, substantial minority holdings in its key iron ore asset Kumba Iron Ore and its key copper asset Anglo American Sur.
Our view of the company’s still strong business risk profile factors in the group’s low cost positions in most segments, healthy margins, and new production from important projects in the coming years. In addition, the company’s commodity product mix is among the most diverse across its peer group, covering iron ore and manganese (39% of group reported EBITDA), copper (24%), platinum (9%), and coking and thermal coal (combined 19%). The De Beers acquisition has further added diversity through a leading position in diamonds. The key weakness remains its lower geographic diversity than peers. Operations are concentrated in South Africa (about 50% of 2011 EBITDA), followed by South America (about 25%, notably Chile), and Australia (about 10%).
The agency concludes the London-based miner current forecast would improve if strikes in the platinum segment end and iron ore production is resumed; the future assessment of Anglo American’s business risk profile to remain “strong”; and commodity prices improve and/or adequate downside resilience.
Image: Cynthia Carroll, Anglo American’s CEO.
