Anglo American must dig deep to avoid being swallowed by suitor

When Anglo American updates the market on its third-quarter production next week, the 107-year-old miner will be judged on more than the performance of its sprawling portfolio of assets.
Next Thursday marks exactly six months since BHP’s takeover attempt emerged, which pushed the embattled London-listed group to set out a radical restructuring plan to defend against being swallowed by the world’s largest miner.
Duncan Wanblad, Anglo chief executive, pledged in May to either sell or spin-off the South African platinum and metallurgical coal mining businesses as well as De Beers, its trophy diamonds arm, by the end of next year, leaving a company focused on copper and iron ore.
After resisting BHP’s £39 billion offer, Wanblad, 56, is left balancing time constraints with realising enough value from its assets, as he attempts to prove to shareholders that he can steer the company towards a higher rating.
“The rule of thumb in these things is that you never want to have a hard deadline that you’ve got to deliver by, because your potential buyers will use that as a stick to beat you with,” one major shareholder said.
A fire at the Grosvenor coal mine in Queensland, which has forced it to suspend operations, represents an early stumbling block. With final bids looming, Anglo is aiming to sell the business before the end of the year, which will mark the first milestone in executing on the restructure.
In July, Wanblad said that there was “no doubt” that the fire would impact the sales price for the met coal business.
Analysts at Jefferies, the investment bank, estimate that Grosvenor accounts for about 30 per cent of the met coal business, which it had valued at $4.5 billion.
A demerger of the Amplats (Anglo American Platinum) business, which is already listed on the Johannesburg Stock Exchange, in South Africa, is being targeted by the middle of next year. Anglo has already sold down a 5 per cent stake in the business by placing shares last month.
The sale or initial public offering of De Beers is seen as the most difficult part of the breakup plan as the diamonds market has been hit by a slowdown in luxury spending and the growth in lab-grown alternatives, which has caused prices to slump.
Uncertainty about when a recovery in the market may materialise is as big an issue as the level of the decline in diamond prices, George Cheveley, a portfolio manager at Ninety One, a top ten investor in Anglo, said.
“If you look at the book value for diamonds, it’s pretty high and I don’t think anybody expects they will necessarily get that and they might well get less,” Cheveley said. At the end of last year the business was valued at $7.6 billion, even after a writedown of $1.6 billion.
Being left with a simpler business that has good growth prospects is as important as the prices realised, he said. “They are clearly very motivated to sell and clean up this portfolio, and I think that’s the right thing. You can’t sit on something and hope for a better price. It generally doesn’t get you a much better price.”
A visit by the BHP chief executive Mike Henry last week to meet with investors in South Africa including the Public Investment Corporation, the second largest shareholder in Anglo American, has naturally invited speculation that the group is considering another bid for the company once the six-month standstill period expires at the end of next month. BHP declined to comment.
The shares remain 21 per cent higher since the start of the year, having outperformed Rio Tinto, Glencore and BHP.
Some analysts and investors think it is unlikely that BHP will make another approach before more of the heavy lifting to separate the less desirable parts of the business.
“If they want to come back for this they have got time to see how the internal process plays out,” the shareholder said.
However, that does also run the risk for either BHP or a rival that the shares rise further as the restructure progresses and there is greater interest from would-be bidders.
Anglo American is in this position after a number of missteps, not least when it slashed its outlook for copper production last December and saw its shares fall by a fifth.
Investors and analysts agree that Anglo cannot afford to make any more operational errors.
“The danger in a sense [is that] this process distracts them from the assets, which actually generate a lot of the cash flow,” Cheveley said.