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Investors Are Concerned after Anglo American’s Investor Day

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Major restructuring

Anglo American’s (AAUKY) investor day presentation highlighted the challenges faced by the broader mining industry. To return itself to health, Anglo American has announced drastic measures.

These measures include cutting its dividend, reducing capital expenditure and operating expenses, and disposing of some of its assets. All these changes are driven by a steep fall in commodity prices.

On its investor day, which was held on December 8, 2015, Anglo American’s CEO (chief executive officer) Mark Cutifani said that the deterioration in commodity prices requires “bolder action” from miners.

Since the start of 2015, Anglo American has fallen by 73% on the London Stock Exchange until December 10, 2015. Other miners, including BHP Billiton (BHP) (BBL), Freeport-McMoran (FCX), Alcoa (AA), and Glencore (GLNCY), have also fallen considerably in 2015.

Investors can consider the Materials Select Sector SPDR ETF (XLB) to get diversified exposure to the materials sector. Currently, Freeport-McMoRan forms 1.7% of XLB’s portfolio.

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Negative share price reaction 

Anglo American’s announcement met with a strong negative reaction from the market. Within two days of its investor day, the stock has lost 14% of its value.

Investors are likely concerned about the possibility of a failure to deliver on cost and productivity improvements while the commodity price environment remains punishing. This is particularly negative for a high–net debt company such as Anglo American. Investors are also concerned about a potential equity rise by the company if commodity prices deteriorate further.

Series overview

In this series, we’ll discuss in detail what steps Anglo American is taking to bring its operations back to health, including operational improvements, portfolio restructuring efforts, and capital allocation. We’ll also see how its management is trying to position the company in the current commodity environment.

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