Anglo back to ambition with surprise dividend and growth aim

27 July 2017 - 13:19 By Kevin Crowley and Thomas Biesheuvel
The return of Anglo’s dividend marks the end of a tumultuous period in the century-old company’s recent history.
The return of Anglo’s dividend marks the end of a tumultuous period in the century-old company’s recent history.

Anglo American Plc, the mining giant that fought to survive the commodities collapse, has returned with a renewed sense of ambition, surprising investors with a dividend and promise to grow.

Anglo unveiled a plan to pay shareholders 40% of earnings, starting six months ahead of schedule with a dividend of 48 US cents a share. It will also consider expanding its existing assets, a sprawling collection of mines producing everything from diamonds to copper across the world.

Debt, which brought Anglo to its knees during the crisis of 2015, has been almost cut in half over the past year. Net borrowing now stands at $6.2 billion, under its year-end target of $7 billion.

“To have comfortably exceeded this already is a major achievement,” said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. The early dividend payment “should be taken very positively by investors.”

The shares gained 3.5% by 11:50 a.m. in London and touched the highest in more than three months.

The return of Anglo’s dividend marks the end of a tumultuous period of aggressive cost cuts for the century-old company. Ironically, it was the least-loved mines and the ones they tried to sell during the crisis, such as iron ore and coal, that propelled the company’s profit recovery.

In 2015, Anglo was among the worst affected of the major mining firms when waning demand from China helped commodity prices to collapse. Chief Executive Officer Mark Cutifani scrapped the dividend that year and embarked on an drastic debt-reduction plan, which involved selling or closing almost half of its assets.

The strategy led to a surge in efficiency, each worker producing 70% more than in 2013, according to the CEO. When commodity prices rebounded, the leaner business was able to take advantage of the recovery.

Bulk commodities have been the real stars of Anglo’s comeback, with iron ore profits more than doubling and coal more than tripling. Now they account for more than half the company’s underlying earnings. In the long term, Anglo plans to keep its focus on copper, platinum and diamond mines.

“We’ve got some very good options inside the portfolio — smaller projects, very rapid payback ranging in diamonds, in copper, even a couple of small things in coal and iron ore — that will enhance the business and cash flows,” Cutifani said on a call Thursday.

Key first-half results and outlook:

While Anglo has largely drawn a line under further disposals, it will make a final decision on South Africa’s Kumba Iron Ore Ltd. next year, Cutifani said on Bloomberg TV.

“We’d be happy to keep Kumba in the portfolio for the long term,” he said. “However in the end, we’ve got to keep an eye on the policy frameworks the South Africans present to the market.”

South Africa’s Department of Mineral Resources last month announced a new mining charter requiring bigger black ownership stakes and dilution for existing shareholders. The industry is fighting the measure in court.

Dividends will also give Anglo some breathing space on South Africa as they are exempt from restrictions on taking cash out of the country, according to Gait.

“A strong dividend policy should significantly help to de-risk the South African portion of the Anglo American business, which has long been a concern for investors,” he said.

Earlier this year, India’s Anil Agarwal became one of Anglo’s biggest investors, securing a stake of about 11%. The billionaire has said the acquisition was in his personal capacity and he doesn’t plan to be an activist investor.

“He’s been quite impressed with what we’ve done and very supportive of the balanced approach to developing and growing the company, making sure that it’s about cash flow and returns,” Cutifani said of conversations with Agarwal.

- Bloomberg