MARKETS don’t like (bad) surprises. When Rio Tinto sucker punched investors with a $14bn (£8.9bn) writedown on its Alcan aluminium unit earlier this month, shares fell three per cent and its chief executive was peeling his name off the door within hours.
Contrast that with Anglo American’s admission yesterday that it would take a $4bn hit in Brazil.
With investors well prepared for bad news and a CEO already half way out the door, you’ve got a buy signal that leaves Anglo shares jostling for a space at the top of a roaring FTSE.
Admittedly the amount written down pales somewhat in comparison, but the main difference here is that old PR favourite – communication.
Shareholders have known since November that total costs, which have been steadily revised up from an initial estimate of $2.6bn since the development began, could top $8bn.
Along with strikes in South Africa, rising capex has been an albatross around outgoing boss Cynthia Carroll’s neck for some time – brought into even greater focus by her promise to rein in spending by $1.5bn just last July.
But over at AngloGold Ashanti, Mark Cutifani should be rubbing his hands with glee. By taking the hit on her watch Carroll has handed her replacement a clean slate on which to work.
Anglo American is still committed to the Brazil project, and has made headway on the bulk of the outstanding licences over which its been tussling with Brazilian regulators.
If, as Carroll promises, she is handing Cutifani a “world-class iron ore project of rare magnitude and quality”, then he should grab the opportunity to make the most of a bad situation. Until it’s clear he’s the man for the job, investors should sit tight.
Elizabeth Fournier is News Editor of City A.M. @ej_fournier