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Can Lonmin Plc, Anglo American plc & BHP Billiton plc Turn Things Around Before It’s Too Late?

Lonmin (LSE: LMI) and Anglo American (LSE: AAL) have announced today that they are taking “urgent action” to cut costs as the price of commodities continues to fall.

Specifically, Lonmin has announced that it is cutting a total of 6,000 jobs and closing two mine shafts to protect its business. These cuts include the 3,500 job losses already announced back in May. The mine shafts to be closed are part of Lonmin’s plan to shutter high-cost production in an oversupplied market. 

The company has already approved 1,355 employee departures, which should save a total of $18.8m per annum — a great start but there is still much to do as the price of platinum recently plunged to a seven-year low. 

Pruning the portfolio

Anglo American also announced today that it is planning to cut 6,000 jobs as part of its cost-cutting programme. Anglo is planning to lower costs by $1.5bn per annum over the next 18 months. Of this total, the company is looking to reduce operating costs by $800m, reduce indirect costs by $300m and make productivity gains of $400m.

Moreover, Anglo is aiming to lower capital spending by $1bn before the end of 2016 and reduce its portfolio of assets from 55 to 40, reducing the group employee count by 35%. 

Anglo slumped to a loss of $1.9bn for the six months to June 30, compared to a $2.9bn profit during the same period a year earlier. These losses included $3.5bn of impairments, after tax. Revenue fell 17% to $13.3bn.

Like Lonmin and Anglo, BHP Billiton (LSE: BLT) is expected to report hefty write-downs and a restructuring plan when it reports results for the year to June 30 next month. The company is expected to announce a $2.1bn earnings charge after spinning off unwanted assets into South32. This follows last week’s announcement that the company was writing down the value of its US shale assets by $2bn. Another $1bn of asset writedowns, mostly related to the group’s copper businesses, are still expected. 

Running out of time

It’s clear that Lonmin and Anglo are in crisis mode. However, as the world’s largest diversified miner, BHP is well positioned to ride out the current storm. 

But for Lonmin, time is running out. The company is losing money hand over fist and analysts believe that a rights issue is just around the corner. Management warned today that the group is reviewing its capital structure amid the need to re-finance debt facilities. That doesn’t sound good.

Lonmin’s net debt was $282m at the end of March well within available committed debt facilities of $563m. Although, as the company is unprofitable at present, it’s likely that this position has deteriorated significantly.

Low platinum price

Like Lonmin, Anglo’s Amplats subsidiary is suffering from a low platinum price. The wider Anglo group is also suffering from low commodity prices and analysts are concerned about the company’s near $14bn debt pile.

Based on current City figures, analysts expect Anglo’s earnings to slide by 47% this year to 58.6p per share. On this basis, the company currently trades at a lofty forward P/E of 15.4 and yields 6.1%.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.