Anglo American PLC has unveiled a change of its group operations, along with several other measures targeted at cushioning the blow from depressed commodity prices.
The measures incorporate a reduction in capex, massive staffing cuts, shutting down assets which are free income negative, selling other assets, and suspending its dividend.
Despite each one of these measures, CIBC World Markets analyst Ben McEwen expects Anglo’s free cash flow will stay at?negative US$1 billion in 2016.
As a result, he warned the mining giant’s net debt will continue to climb, with net debt to EBITDA poised to exceed 4x, in line with the company’s own projections.
“While Anglo suggests its restructuring action and some US$15 billion in liquidity like a buffer to offset financing risks, liquidity along is increasingly unimportant,” the U.K.-based analyst told clients.
More debt requires more equity and, therefore, a greater likelihood of equity dilution.
Anglo might have enough operating asset value to supply equity holders some value, but McEwan noted that it could not be sufficient if spot commodity prices don’t improve.
As a result, the analyst is forecasting more action will be taken in the type of a US$3-billion equity raise, accompanied by asset sales. And when commodity prices continue to weaker, he expects further material equity dilution.
“In relation to equity issuance, we view the impact of delaying before the 11th hour at Lonmin,” McEwan said. “Lonmin waited and waited… and waited… and waited… dreaming about a submit metals prices that never eventuated. As a result, its balance sheet continued to deteriorate and also the company was forced into several (progressively more) dilutive equity issuances.”