Anglo American is Digging a Big Hole (AAUK, RTP, ACH, AU, ABX, NEM)

Douglas A. McIntyre

The bigger they are, the more noise they make when they fall. British miner Anglo American plc (NASDAQ:AAUK) has canceled its dividend for the fourth quarter, suspended its $4 billion share buyback program, and fired 19,000 people, about 10% of its workforce.

Anglo American, like its counterpart Rio Tinto plc (NYSE:RTP), got crushed by falling commodity prices and enormous debt levels resulting from recent acquisitions. Rio Tinto got a bailout of sorts from Chinese aluminum giant Aluminum Company of China (Chinalco) (NYSE:ACH), which agreed to pay $19.5 billion for an additional 9% stake in Rio Tinto giving the Chinese company an 18% stake in the mining company. That deal faces a problem from Australian regulators because it raises the issue of foreign ownership of more than 15% of the company. Anglo American has no such deal in the works, but with more than $11 billion in debt, it would certainly not turn down a similar offer out of hand.

Unlike gold miners like AngloGold Ashanti Ltd (NYSE:AU), Barrick Gold Corporation (NYSE:ABX), and Newmont Mining Corporation (NYSE:NEM), which are rising on the increased demand for gold, commodity miners like Anglo American and Rio Tinto have taken heavy hits from a depressed economy that has quenched the thirst for iron ore and copper.

Anglo American shares are trading down 13% in early trades this morning, and shares of Rio Tinto are off nearly 5% due to the weakness of Anglo American’s results. Gold miners AngloGold and Newmont are up about 4%.

Paul Ausick
February 20, 2009