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Johannesburg - Anglo American [JSE:AGL] dropped to a new record low after scrapping its dividend for the first time since 2009 and pledging deeper spending cuts to help the mining company withstand a collapse in commodities.
The shares slid as much as 9.9% in London. The company will suspend its payouts for the second half of this year and for 2016, it said in a statement Tuesday.
Anglo is abandoning its practice of steadily increasing the dividend in favor of a system that allows the payment to rise and fall with the company’s profits, known as a dividend payout ratio.
“No one likes to suspend a dividend,” Chief Executive Officer Mark Cutifani said on a call with reporters. “We think it’s the right thing to do to make sure the company remains in good shape.”
Cutifani is seeking to turn around the company’s fortunes in the face of metal prices at the lowest in about six years and China’s sluggish economic growth.
Anglo has sold assets and cut jobs to preserve cash as the shares tumbled 71% this year, the second-biggest decline in the UK’s FTSE 100 Index.
The producer, which is consolidating its business units to three from six, will eventually cut its workforce by almost two thirds.
Anglo fell 5.4% to 349 pence by 09:42 in London, giving the company a market value of $6.8bn. The shares earlier touched the lowest since being listed in 1999.
The last time Anglo cut its dividend, during the depths of the global financial crisis in 2009, the shares plunged 17% in one day.
“At this moment time, investors are still concerned whether or not Anglo as a business retains the liquidity to continue to grow,” Kieron Hodgson, an analyst at Panmure Gordon & Co., said in a Bloomberg Television interview.
Anglo reduced spending forecasts for 2015 to 2017 by $2.9bn and increased the amount it plans to raise from asset sales to $4bn from $3bn, with its phosphates and niobium businesses confirmed for disposal, it said. Anglo expects impairments of $3.7bn to $4.7bn because of weak prices and asset closures.
After the restructuring, Anglo will me a much smaller company. It will control 20 to 25 assets split across three divisions of its De Beers diamond unit, industrial metals and bulk commodities, and employ about 50 000 people, Cutifani said.
Anglo currently has about 55 assets and employs 135 000 workers. The company will focus on it’s so-called tier-one assets, which are competitive at low commodity prices.
“This is a continuation of that more aggressive approach,” Cutifani said. “We’ve gone another step further and obviously with the market the way it is, with the recent reductions, we think we have to be more aggressive.”
Companies that dig up everything from gold to copper have failed to stem a prolonged collapse in mineral prices.
Years of increased output have created global surpluses just as slower economic growth erodes demand. While there have been some production cuts, the rout has deepened because miners are still supplying more metal than is needed around the world.
Cutifani said the company will continue to shutter assets that don’t pay their way. “We will be materially downsizing the portfolio,” he said. Anglo has added the phosphates and niobium businesses to the 12 assets that it’s already in the process of selling.
