London - Anglo American’s shares slumped to the lowest since 1999 after HSBC Holdings said the producer will continue to burn through its cash even after cutting costs and potentially scrapping its dividend.
Anglo, the second-worst performer in the U.K.’s benchmark FTSE 100 gauge this year, fell 7.7 percent to 417.2 pence by the close, the weakest level since the company listed in London. HSBC lowered its recommendation on the stock to reduce and cut its price estimate to 410 pence. The 13-member FTSE 350 Mining Index declined 2.3 percent.
HSBC anticipates “more near-term pain” and no “clarity on a long-term resolution to reverse potential cash burn” and expects Anglo to forgo paying a full-year dividend.
Speculation that Anglo may follow rival Glencore in cutting its dividend has increased as the biggest mining companies seek to counter sliding commodity prices. The China-led slump has undermined Anglo CEO Mark Cutifani’s efforts to turn around the fortunes of a business that mines platinum and diamonds in Africa and iron ore in Brazil.
He’s seeking to raise $3 billion by selling assets and cutting jobs to trim costs and reduce debt. Anglo has already raised about $2 billion this year by offloading its tarmac business, two copper mines in Chile and platinum assets in South Africa. It said in July it had net debt of $11.9 billion, with a long-term borrowing target of $10 billion to $12 billion.
HSBC said that while Anglo’s niobium and phosphate business in Brazil and parts of its South African coal operations were viable candidates for sale, the company may struggle to raise significant funds in the current market.
“Acquirer appetite will be low in this market,” and any potential sales are “unlikely to fetch game-changing valuations,” HSBC said. Bloomberg News reported last month that the company was considering selling its niobium and phosphate unit.
BLOOMBERG