Anglo American Plans to Slash Dividend

LONDON—U. K. mining giant Anglo American PLC plans to slash its dividend, people familiar with the matter said, in another sign of the turmoil rippling through the mining industry during a prolonged slump in commodity prices.

A dividend cut by Anglo, the world's fifth-largest miner by market value, would be the second from a major mining company in recent months and comes four month after the miner announced it would cut 53,000 jobs over the next few years—a third of its workforce.

The people familiar with the matter said Anglo is likely to shift to a so-called payout-ratio dividend, in which cash would be distributed to investors relative to earnings. As earnings rise, so would dividends, and vice versa.

The timing of a dividend-cut announcement by Anglo is unclear. It could come as soon as Tuesday's "investor day" in London, when the company provides updates on how it is handling the commodity route. It also could wait until early next year when it announces full-year earnings results.

Dividends have been under pressure in the mining industry. Swiss trader and miner Glencore PLC, in September said it would suspend its dividend as it moves to slash debt and fend off looming ratings downgrades. Analysts have questioned the ability of BHP Billiton Ltd. to maintain its dividend after a dam break at a mine run by a joint venture in Brazil caused a deadly flood, but the Anglo-Australian miner has said it won't change its payout for now.

Anglo has scrambled to shore up its balance sheet as the company reels from plunging prices for the metals and gems it digs up. The rout's cause has been a global market that is flooded with supplies at the same time that demand from China—the world's biggest consumer of industrial metals—has been weakening.

The price of iron ore—a steelmaking ingredient that accounts for more than a quarter of Anglo's earnings before interest and taxes—fell to $40.30 a ton on Thursday, down 18% since November and off nearly 80% since its peak in 2011. Anglo has contributed to the glut, opening a large iron-ore mine in Brazil called Minas Rio in 2014.

That has caused Anglo to burn through cash as its earnings plummet into the red. The company reported a $3 billion loss for the first half of 2015.

The company's share price has lost nearly 70% of its value in 2015. It closed at £ 3.87 on Thursday, a new low since it went public in 1999.

Investors have also worried about Anglo's debt levels. It had net debt of $13.5 billion as of the end of June, or $11.9 billion on the closure of its stake in Lafarge Tarmac Holdings Ltd. buildings material joint venture.

If commodity prices keep sliding, that could put pressure at Anglo on a key metric credit-ratings firms track—net debt divided by adjusted earnings—and spark concerns about a potential credit downgrade. Those same fears pushed Glencore, weighed down by nearly $30 billion in debt midyear, to disclose plans to shed $10 billion in debt.

Goldman Sachs Group Inc. analysts estimate a dividend cut by Anglo could salvage $800 million in cash a year for the company, which currently distributes about $1 billion a year in dividends.

Analysts say they also expect Anglo to announce large cost cuts on Tuesday.

A dividend cut would be the latest move by Anglo to change its ailing fortunes. Chief Executive Mark Cutifani took the helm in 2013 with a turnaround plan that involved selling off distressed assets and improving the quality of its diverse mining operations.

Write to Scott Patterson at [e-mail]

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(END) Dow Jones Newswires

December 03, 2015 14:05 ET (19:05 GMT)

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