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Copper is an effective conductor of electricity. The red metal has charged up the mining sector since BHP’s interest in buying Anglo American became public two weeks ago.
Anglo, having rejected BHP’s initial all-share £31bn proposal, will be considering how to defend itself. BHP has until May 22 to make its next move. Whatever it decides, Anglo needs a new plan to create value from the troubled mining house.
Anglo, with its convoluted structure and broad commodities mix, has been through this many times before. In early 2016, then chief executive Mark Cutifani promised to sell off much of the miner’s portfolio. When commodity prices rebounded, he reversed course. Later, Anglo outwaited Indian tycoon Anil Agarwal after he amassed a 20 per cent stake then did not bid.
Thanks to its South Africa exposure and conglomerate structure, Anglo has traded mid-teens discount to its peers on enterprise value to trailing ebitda over the past decade. The question is whether Anglo’s team has a plan to close that valuation gap — and whether investors believe they will actually do it.
BHP’s proposal requires Anglo first to hand its stakes in the Johannesburg-listed platinum and Kumba iron ore businesses to investors. Anglo could do this itself, but has not. A mooted South African capital gains tax of about $2bn is one reason. There could be additional costs, such as jobs guarantees. Anglo is arguably better placed to navigate those issues than others.
The miner has form. It spun out paper group Mondi in 2007, and its thermal coal business Thungela in 2021. Thungela’s shares are up 275 per cent, while coal prices have not changed much.
Just separating Amplats and Kumba is insufficient. Other divestments should follow. Ailing De Beers, 85 per cent owned, is a misfit: diamonds are as much branding as mining. Already on the block, a sale — while tough — could fetch $2.5bn.
A more radical step to streamline and raise funds would be to sell its Brazilian iron ore mine. Vale has already traded access to its nearby iron ore for 15 per cent of the Minas-Rio, valued at no less than $8bn on Jefferies’ sum of the parts. Net of Vale’s stake, and before tax, that more than covers all Anglo’s dividend payouts since 2021, according to S&P Capital IQ data. Getting out of iron ore would tilt Anglo’s earnings markedly towards more desirable commodities, like copper.
Anglo was in a state of flux before BHP showed up. Chief executive Duncan Wanblad’s December promise of a strategic review gives cover for drastic action. He pledged there were no “sacred cows”. Investors will be wanting signs that the braai could be in earnest now.