When Mark Cutifani, the boss of Anglo American, addressed analysts and investors on a recent trip to South Africa he had a simple message: the FTSE 100 miner was prepared to hold on to assets previously deemed noncore and run them for cash — unless it received the “right” price from buyers.
Those comments marked a sharp shift from January when Anglo, under attack from hedge funds, put a bundle of assets up for sale as part of a radical “shrink to survive” strategy.
Since then the mining sector has enjoyed a dramatic change in fortunes as a sharp and unexpected rebound in commodity prices, such as iron ore and coal, has boosted profits to the extent that large, diversified miners, such as Anglo and Glencore, will comfortably achieve their debt reduction targets.
The question now facing an industry that acquired a reputation for profligate spending and dealmaking during the 2004-11 commodities boom, is how it will deploy the windfall generated by the bounceback in prices. The choices will help determine the direction of share prices next year and whether 2017 will be a bumper one for shareholder returns.
“Management teams have gone through a particularly horrible time and have learnt their lesson,” said Clive Burstow, an investment manager at Barings Asset Management. “There is a lot of producer discipline and that’s key to this becoming a more sustainable cycle.”
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