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In tennis, it is known as “spectator’s neck”. The back and forth in BHP’s attempt to win over rival miner Anglo American is enough to make investors rub their napes. Anglo’s latest shot on Tuesday — a break-up plan to focus the group on copper, iron ore and crop nutrients — is worth their attention.
Markets shrugged off Anglo boss Duncan Wanblad’s pledge to create a more profitable, cash flow rich company, with its shares falling slightly as a burgeoning takeover premium deflated. Yet the fact Anglo has finally moved to clean up its messy structure and overly broad commodities mix has to be a good thing.
Wanblad’s restructuring would make Anglo a copper specialist. More than half of its pro forma ebitda would come from the red metal in 2026 on Visible Alpha estimates. He plans to sell off the miner’s metallurgical coal mines, the best of which are in Queensland in Australia, demerge Anglo American Platinum and either divest or demerge the De Beers diamond unit. Anglo’s ailing nickel business will be mothballed.
In met coal, Anglo has plumped for an asset sale that could credibly raise much-needed capital quickly: it is already in contact with buyers for the Australian business in the Bowen Basin. That could raise $3bn; Glencore, for example, has operations not far away.
Other elements will take time. Separating its stake in Johannesburg-listed Amplats will require negotiation, given the large South African labour forces at risk. De Beers may take a while, though Anglo is in advanced talks over a new sales agreement with Botswana, a pre-requisite for any separation. Anglo will probably also seek to sell its stake in Samancor, the South African manganese/chrome business worth about $1.4bn, according to Jefferies.
Simply shedding coal this year would be an important step, given Anglo’s erratic record in executing on previous strategic plans. Those funds should cover a good chunk of any South African tax hit from separating Amplats, as well as paying down some debt. But more importantly this plan should deliver more profits to shareholders. In two years, Wanblad sees better ebitda margins — up by half to 46 per cent. Alone the added $800mn cost savings from this break-up plan once taxed and capitalised is worth $3.5bn, or about £2.30 per share.
Self-help from Anglo is less sexy than an all-out bidding war. But BHP’s constraints on bidding much higher, and the difficulties in going hostile, mean the latter looks increasingly unlikely. Anglo, at least, has given investors reason to stay in their seats.
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