[Anglo American] A Mining Giant Returns From the Dead – by Chris Bryant (Bloomberg News – July 27, 2017)


To those unfamiliar with Anglo American Plc’s share price collapse in 2015, it might seem strange that a company in control of one-third of global rough diamond production couldn’t spare a dime for shareholders.

On Thursday, chief executive Mark Cutifani tried to turn a page on that dark period of routed commodity markets by reinstating Anglo’s dividend. That’s six months earlier than expected. No question, the payout — 40 percent of underlying earnings — is positive, but it may not be enough to close a large valuation gap with peers.

Management had rightly prioritized cutting debt over dividends in recent months, even after rival Glencore Plc began talking up the potential for a bumper payout. But Anglo’s efforts to trim operating expenses and capital expenditure, together with improved cash flow from rebounding commodities, have put its balance sheet on a much firmer footing.

Net debt has fallen to about $6.2 billion, below a $7 billion year-end target and less than one times annualized Ebitda. Though demand for platinum, one of Anglo’s core commodities, has tempered lately (in part due to falling sales of diesel cars) and currency movements were unfavorable, the company generated $2.7 billion pounds of free cash flow in the first six months of 2017, more than double the same period a year ago.

Paying a dividend doesn’t by itself create any additional value — the cash already belongs to shareholders. But handily it does let Anglo American use funds that might otherwise be stranded.

For the rest of this article: https://www.bloomberg.com/gadfly/articles/2017-07-27/anglo-american-gets-its-mojo-back