Anglo American, the mining group, has defended a decision to scrap dividend payments and cut 19,000 jobs round the world, saying the moves were necessary for the business to survive “horrendous” market conditions.
The cuts came as the group unveiled a 2 per cent fall in annual pre-tax profits as record earnings from the coal and iron ore divisions were outweighed by lower profits from platinum, base metals and diamonds.
The shares fell 17 per cent to £10.27.
Cynthia Carroll, the chief executive, said that the effect of last year’s sharp fall in commodity prices meant 2009 would be “very tough” and it was “impossible to give any kind of forecast” for when demand would recover.
Anglo American’s net debt burden rose from $5.2bn at the end of 2007 to $11bn at the end of 2008, largely as a result of the $5.8bn acquisition of the Minas Rio Brazilian iron ore business.
Although the bulk of Anglo American’s operations were still generating cash, even at lower commodities prices. Ms Carroll said that the group had been forced to take action to strengthen its balance sheet.
“We’ve made the extremely difficult decision to suspend our dividend,” she said. “We believe this is responsible and the right course of action given the horrendous market conditions. Any other decision would have been wrong and put our balance sheet under undue pressure.” Dividend payments would be reinstated “when market conditions allow”.
René Médori, Anglo’s finance director, said the dividend cut and other cost-cutting measures would enable the group to repay its debts comfortably without needing a rights issue. “We looked at whether we should do a rights issue and reached the conclusion it was not something that was necessary,” he said. Xstrata and Rio Tinto, the rival mining groups, have had to resort to a rights issue and a cash injection from a Chinese investor respectively to cut debts.
About 10,000 of the job cuts announced by Anglo will come at its Anglo Platinum division, while the remaining 9,000 will be spread across the rest of the portfolio.
The group has halved its capital expenditure for this year, prioritising spending on the Barro Alto nickel mine and Minas Rio iron ore mine in Brazil and the Los Bronces copper mine in Chile.
Since she was appointed chief executive in 2007, Ms Carroll has tried to modernise the corporate culture at Anglo and streamline operations, an approach that has caused some dissent in the company.
But she said that her initiatives were starting to bear fruit and pledged to save $2bn by running operations more efficiently and centralising procurement.
Anglo has not yet shut down any mines because of lower commodity prices but it has cut output at its platinum, coal and diamond operations. “We will make further production cuts as necessary,” said Ms Carroll.
De Beers, the diamonds business in which Anglo American owns 45 per cent, is facing particularly tough times as consumers cut back on luxury items. Gareth Penny, the managing director, said: “We are looking at significant production cuts across all operations in southern Africa and Canada.”
Revenues for the Anglo American group rose 3.3 per cent to $26.3bn in 2008 but pre-tax profit fell 2 per cent to $8.8bn, below analysts’ expectations. Basic earnings per share fell 22 per cent to 4.34 cents.
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