Glencore isn’t the only mining giant that can shock the markets with a dramatic restructuring. After the Swiss firm announced a $10bn (£6.7bn) debt reduction programme, rival Anglo-American has come out with its own ‘radical’ plan to reduce asset numbers by 60%, while gutting overheads and capital expenditure. Anything you can do, eh.
Anglo American boss Mark Cutifani said his firm would achieve cost and productivity improvements of $3.7bn by 2017 compared to the heady days of 2013 when everyone thought China’s appetite for commodities was bottomless, though $1.6bn of that will already have been achieved by the end of this financial year as a result of ongoing (but presumably less radical) restructuring efforts.
At the same time, capex levels will be slashed to a measly $2.5bn by the end of 2017, some 55% down on its 2014 spend, while disposals of its less profitable assets would net the firm $4bn. Just for good measure, it’s cancelling the dividend.
One imagines there aren’t many shareholders who were surprised by that one, though it doesn’t appear that’s made it any easier to swallow. Anglo American shares fell 8.7% to 336.7p by lunchtime, having now lost over 80% of their value in the last three years.
The numbers in Anglo’s plan are pretty serious, but of course so are its problems. The era of low, low prices for commodities may be good if you fancy picking up some steel billet for a last ditch Christmas present, but it’s been brutal for the mining empires. Cutifani said the impairment on Anglo American’s assets to reflect their earning potential would be between $3.7 and $4.7bn, adding to the $3.5bn it announced in its interim results in June. Ouch.
The reason the price collapse has hit miners like Anglo and Glencore so hard as to threaten their very existence is that they racked up colossal debts during their supercycle expansion phase. Those debts are just coming home to roost now that revenues and profits have slumped.
Anglo has $13.5bn in net debt, which is roughly equal to half its annual revenues. Unfortunately for Cutifani, the proposals announced today aren’t expected to cut that debt by the end of this year, though as they pick up steam next year they may help.
This is where Glencore’s plans clearly have the edge. Through asset sales and an equity issuance, it’s already over half way towards its $10bn net debt reduction target for the end of next year (though that still leaves it $25bn in the red). Not that it's a competition or anything, but you call that a restructuring? This is a restructuring.