Anglo American was Monday’s sharpest FTSE 100 faller on worries that its balance sheet strength will be tested by a downturn at De Beers, its most profitable division.
De Beers is likely to be the laggard when Anglo delivers its third-quarter production update on Thursday, said dealers.
The diamonds business, which accounted for nearly a third of Anglo’s first-half operating profit, has been under pressure as stone polishers run down inventories following a weak end to 2014.
Citigroup forecast Anglo’s diamond production by weight to have fallen 11 per cent against the previous quarter.
Over the same period rough diamond prices slipped as much as 10 per cent with demand squeezed by a strong dollar and a credit crunch among the polishers.
While the worst is likely behind De Beers, Anglo will still need to find between $2.4bn and $2.9bn to defend its investment-grade credit rating, which management has said it will prioritise over a progressive dividend, said JPMorgan Cazenove.
“We believe a cut to the dividend is highly likely before or at 2015 results,” said the broker. “If commodity prices fall even modestly from spot levels, though, this may well not be enough, and we see a significant risk that the company could need to raise additional capital.”
Anglo shares dropped 7.4 per cent to 625.5p. Dividend swaps have already priced in a cut of about 70 per cent to Anglo’s 2016 payout, traders said.
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