Anglo to slash capex - report

Johannesburg - One of the world's largest resources groups, Anglo American (AGL), is this week expected to confirm plans to slash its capital spending by half, The Telegraph reported on Sunday.

According to the UK newspaper, Anglo is expected to cut its 2009 capital spending from a previous forecast of about $10bn to between $4bn and $5bn.

Resources groups across commodities have had to reconsider the way they do business in a depressed global economic climate, and in response to a collapse in commodity prices and the need to conserve cash.

The Telegraph cited a source close to the resources giant as saying the group, which employs 160 000 people, had also started a review of all head and regional office cost functions.

Speculation last week also suggested the group could halt its $4bn share buy-back programme, but this was later denied by the group.

"This is about positioning Anglo for the new climate," the newspaper quoted the unnamed source as saying.

Anglo has undergone a radical restructuring in recent years, having sold assets deemed non-core to the business.

However, attempts to offload some of its non-core assets such as Tarmac have been frustrated by the economic downturn.

Good financial position

Another article, published by business daily the Financial Times on Sunday, said that when compared to its peers Rio Tinto and Xstrata, Anglo American is in a good financial position.

But it noted that the group - which owns 45% of diamond miner De Beers and is a major participant in the platinum, coal and copper markets - still has significant debts following the $5.5bn acquisition of the Brazilian iron ore project Minas Rio earlier this year.

"Anglo's coal division is the only part of the company still generating substantial profits following falls in the price of platinum, copper and diamonds, according to analysts," stated Financial Times.

Macquarie on Monday said in a research note to its clients that it regarded Anglo American's platinum arm Anglo Platinum's (AMS) current balance sheet positioning as "untenable".

The global mining report suggested that the company would need to undertake "material restructurings, either at an underlying

In addition, the analysts queried the company's ability to service debt given its lack of profitability and cash generation at an operational level.

Material operational restructurings will also need to be implemented, the note stated.

But Anglo American is not alone. Credit Suisse, in a recent note sent to clients, warned that mining companies may defer $50bn worth of development projects - or two-thirds of next year's spending plans - for a year, as credit remains tight and commodity prices continue to weaken.

Rio Tinto, whose shares lost 26% of their value last week, is also reportedly planning to announce "a root-and-branch review" of capital expenditure and operating expenditure this week.

- I-Net Bridge