Anglo American, a global leader in mining with diverse mining assets will increase its lending to its platinum subsidiary, Anglo Platinum by 52.5 per cent to £1.6 billion in view of the global collapse in price of platinum.
London-based Anglo American, which owns 80 per cent of Anglo Platinum, has bailed out its subsidiary by increasing its committed facility by R7.1 billion to R20.6 billion after Anglo Platinum net debt had increased by £1.4 billion in the first six ended 30 June and said that its debt would rise even further due to the commitments made on capital expenditure.
Since the beginning of 2008, the global price of platinum has declined from over $2,000 to $700 an ounce at the end of last year, but it has since recovered to about $1,200 an ounce.
With Anglo American's help, ''The group is currently reviewing its funding needs and facilities with the aim of restructuring its existing borrowings,'' Anglo Platinum said in a statement.
Earlier, there were rumours that Anglo Platinum would undertake a rights issue to shore up its balance sheet, ''However, until cash flow improves, the board considers it prudent to continue to suspend dividend payments. Anglo Platinum is confident that its current short-term debt facilities are adequate to meet its near-term funding requirements.'' The company said.
Chief executive Cynthia Carroll of Anglo American, who is under pressure to regain investor confidence after the company's recent overpaid acquisitions and poor performance, will be forced to make further deep cost cuts in Anglo Platinum.
The group had announced plans in February to reduce its workforce by 19,000, with about 10,000 of these expected to come from Anglo Platinum.
She also has to convince shareholders that Anglo American can withstand the global economic downturn and is able to sustain as a stand-alone company after the board backed her in rejecting Swiss miner Xstrata's $68 billion equal merger proposal last month. (See: Anglo American rejects Xstrata's $68-billion deal)
But Xstrata's merger proposal with Anglo American has opened up the possibility of other big mining companies making a lucrative bod - Vale of Brazil and China's state-owned Chinalco are keenly watching the events unfold at Anglo American.
Anglo American had recently undertaken $2 billion in cost cutting measures, but shareholders are skeptical that Carroll would be able to achieve this by 2011 as promised by her.
The miner, which is to unveil its interim half-year results on Friday, is expected to extend its dividend freeze, as the outlook for demand in metals is weak. Analysts forecast operating profits to be down to $1.9 billion from $6 billion last year.
Last month, Anglo American was talking to other mining companies and investors to take a 30-per cent stake in MMX Minas-Rio and MMX Amapá iron ore projects, the Brazilian iron ore producer it acquired in January 2008 for $5.5 billion.
Anglo American was reported to be talking with Dubai Natural Resources World, Bahrain-based Gulf Industrial Investment Co, Sojitz, the diversified Japanese conglomerate and the Chinese state-owned metals group Chinalco, to sell its 30 per cent stake or co-develop the Brazilian iron ore mines, which require an investment of about $3.6 billion.
By selling a 30-per cent stake, Anglo American will be able to reduce a part of its $11 billion debt, accrued mainly due to the overpriced, height-of-the-commodities-boom acquisition of MMX Minas, an acquisition, which has been criticised by Anglo investors in the past.
Yesterday, the miner sold its remaining stake in South Africa's Hulamin for R1.16 billion.