JSE stages modest rally but Anglo plummets again

 Anglo American, once a flagship share on the JSE, plummeted to further depths on Wednesday when the stock dropped by more than 10% to yet another low.

The rest of the market stabilised somewhat after Tuesday’s bloodbath, when the Resources index lost more than 7% and all the other major indices were also down.

By midday on Wednesday the resources sector was only 2.20% down, mainly due to Anglo American’s troubles, but most of the other indices were moderately higher as investors saw some buying opportunities.

By midday the All-share index was 0.32% higher at 49 230 points and the Top 40 index 0.37% up to 44 314 points. Both are still lower for the year to date. The Industrial index traded 0.63% higher and the Financial index gained 0.63%.

But all eyes were on Anglo American, which at midday was another 11.68% lower at only R64.26. The company shocked the market on Tuesday with news that it is going to sell 60% of its assets, a process that will reduce the work force by 85 000 people from 135 000 to only 50 000.

The news that upset the market most was that the company suspended its dividend for the second half of 2015 and for 2016.

Analysts are however sceptical if these measures are enough, as the company is struggling under a debt burden which will reach about $13bn by the end of 2015.

The destruction of value for shareholders is absolutely staggering. Before Wednesday’s drop the share price was already 66.21% lower than the opening level of R215.33 at the beginning of the year. It reached a 52-week high of R223.17 on February 19, which means the stock has dropped more than 70% since February.

These declines are driven from the London Stock Exchange, where Anglo American is one of the worst-performing shares on the FTSE 100 index.

On Tuesday Anglo American’s two listed South African subsidiaries, Anglo American Platinum (Amplats) and Kumba Iron Ore, also traded sharply lower, but the declines were more modest on Wednesday. Both companies will also be restructured, particularly Kumba which will reduce production by more than 25% due to the low price of iron ore, which has dropped 80% from its peak.

Kumba, which lost 8.6% on Tuesday, at midday was another 3.6% lower at only R36.41. The share price is now already 84.9% lower than the R239.90 it traded at on December 31 last year. The share price reached a 52-week high of R249.12 on January 12 this year, which means it is now more than 90% lower than that high – and that happened in only 11 months.

Amplats lost only 1.08% to R168.99, which is more than 50% lower than the opening level of R341.12 at the beginning of the year. On February 15 it traded at a high of R393, which means the share price has lost R224.00 or more than 57% of its value since then.

BHP Billiton [JSE:BIK], the other big commodity producer also listed on the London Stock Exchange, stabilised on Wednesday and by midday the share price was 0.11% higher at R159.00. It is now 36.13% lower for the year.

In the industrial sector SABMiller reached yet another high when the share gained 0.46% to R887.11. It is now 46.5% higher for the year, and gained 8.12% over the last 30 days.

Naspers gained 2.11% to R2 011.48 and Steinhoff  was only 0.06 higher at R79.53.