Johannesburg - Anglo American’s road to recovery received a boost on Friday with a positive outlook by S&P Global Ratings and higher profits at its Kumba Iron Ore subsidiary for the year to December.
S&P had upgraded its senior unsecured ratings and its subsidiaries to BB+ from BB.
Anglo, which has been fighting for survival amid lower metal prices in tandem with its competitors, also said S&P had upgraded its national scale to zaA from zaBBB+ and upgraded the short term NSR to zaA-1 from zaA-2 with a stable outlook.
Anglo’s positive ratings from S&P comes six months after Moody’s Investor Services upgraded its outlook to positive from negative.
The agency had attributed the rating to Anglo downsizing of its operations, and it expected the execution of divestments to become one of the main drivers of deleveraging. Fitch Ratings cut Anglo’s credit assessment to junk with a negative outlook amid uncertainty in the group’s turnaround plan in February.
Anglo, whose assets were marginally profitable, unveiled a turnaround plan earlier this year that comprised cutting debt and the re-engineering of the business.
Among others, the company has sold non-core assets including the R3 billion sale of its 9.7 percent stake in Exxaro Resources, which was announced last week. The company had previously said it would focus on producing diamonds, copper and platinum and dumping bulk commodities.
Kumba was one of the assets which Anglo said it would put up for sale. The commodity price slump saw Kumba subject to job losses and introduced lower cost pit configuration at its Sishen mine. On Friday, Kumba said the export prices of iron ore made it possible for its earnings and basic earnings for the year to December to grow by at least 20 percent.
Kumba which is 70 percent owned by Anglo said earlier on Friday it expected earnings and basic earnings increases of at least R758 million and R94 million respectively in the year to December compared to 2015.
Kumba’s headline earnings a share and earnings a share were expected to be at least 20 percent higher compared to 2015, increasing to R2.36 and 30 cents a share respectively.
“The expected increase in earnings is largely attributable to the increase in export iron ore prices during the year and the weaker average rand US dollar exchange rate,” Kumba said. Iron ore was up more than 40 percent this year.
Rene Hochreiter, a mining analyst at Noah Capital Markets, said improved iron ore prices, coupled with better performances at Anglo’s diamond and copper businesses, were helping the company get into better shape.
“Anglo is looking positive, because commodity prices are better, especially copper and coal,” he said.
Hochreiter speculated Anglo was unlikely to go ahead with plans to sell Kumba because of the strong iron ore price.
“I think Anglo will keep Kumba, and it might also decide to keep its Minas Rio iron ore project in Brazil,” he said.
Hochreiter also said Anglo now had prospects of a dividend payout after Anglo chief executive Mark Cutifani had hinted at resuming dividend payments next year following a decision to put it on ice.