Rise in Anglo American share price could offer chance to fill its coffers

  • Reuters
  • Stock Market News
Rise in Anglo American share price could offer chance to fill its coffers
Credit: © Reuters.

* Anglo vs platinum: http://reut.rs/1RwFBjB
* FTSE 350 mining vs copper: http://reut.rs/1UCQIqe
* Anglo sees asset sales as preferred option to reduce debt
* Rights issue would be easier than disposals -fund managers

By Pratima Desai
LONDON, March 22 (Reuters) - The doubling of Anglo
American's AAL.l share price since late January means the time
could be ripe for a rights issue rather than an asset fire sale
to boost its defences against tumbling commodity prices, fund
managers say.
The London-listed global miner has insisted it does not need
to raise cash and that it plans to sell its iron ore, coal and
nickel operations as part of a sweeping overhaul to raise $4
billion this year and cut net debt to $10 billion.
But fund managers say that disposals while commodities
prices are bumping along the bottom are likely to take some
time, with potential bidders holding off in the hope that assets
could become cheaper.
"The recovery in Anglo's shares is a strong incentive for a
rights issue," said Michael Hulme, a commodities equity fund
manager at Cargminac.
"It might depend on how De Beers is doing, but it's hard to
see how they can get away without a capital raise. There are
some signs of stabilisation, but fundamentals in commodity
markets haven't changed."
Anglo is planning to concentrate on its De Beers diamond
business as well as platinum and copper assets.
The company's share price, at about 544 pence, is more than
double the levels of late January, when the stock fell to a
record low below 220 pence. However, the sector-wide gains could
prove fragile, with rises attributed largely to short-covering
rather than long-term investors looking for value.
Anglo Chief Executive Mark Cutifani last month said that
the industry could not rely on a reversal of the commodity price
slump any time soon.

BOTTOM OF THE CYCLE?
"2016 is already shaping up to be the most challenging yet.
Opinions are divided on whether we have reached the bottom of
the cycle ... So things may still get worse before they get
better," Cutifani said.
Chief Financial Officer Rene Medori also said at a briefing
last month that the company had no plans for a rights issue. "We
don't think we will need one," Medori said.
Investec analyst Jeremy Wrathall believes that Anglo should
reconsider.
"It would be responsible to raise some money," Wrathall
said. "It would be optimal for them to do a rights issue now.
They could be missing an opportunity."
A cash pile of $6.9 billion at the end of December -- now
down to $5.2 billion after Anglo bought back some debt -- has
given the company some headroom.
Credit facilities of $7.9 billion and an extension of $1.5
billion announced on Tuesday mean that liquidity is unlikely to
be a problem.
"But why borrow more when the market has made it possible to
raise money," one banking source said. "The assets need to sell
at a good price soon, within months. It will be difficult, they
are perceived as a distressed seller."
Fund managers say that Anglo may eventually have to raise
cash anyway because of high leverage ratios, which don't change
with the sale of assets that produce income.
The ratio under scrutiny is net debt to EBITDA (earnings
before interest, tax, depreciation and amortisation), which UBS
analysts recently estimated at an "uncomfortable" 3.3.
"If you are selling a producing asset, you are selling
EBITDA, so your leverage ratios don't change." a UK-based fund
manager said. "They could sell Minas Rio, which is not producing
at full capacity. If they could get a decent price, they could
reduce debt without reducing EBITDA."
Anglo expects Minas Rio to be producing at full capacity of
26.5 million tonnes of iron ore in 2018.

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GRAPHIC: Anglo American vs platinum http://reut.rs/1RwFBjB
GRAPHIC: FTSE 350 mining vs LME copper http://reut.rs/1UCQIqe
Anglo American looks to cut debt through asset sales

Biggest mining equity rally in years built on shaky foundations

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(Editing by Veronica Brown and David Goodman)

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