Anglo American adopts ‘shrink-to-survive’ strategy

The formerly widely diversified mining company Anglo American, which on Tuesday opted to jettison two-thirds of its minerals base by number, is engaging in widespread disposals to improve its chances of survival, Investec Securities commented yesterday.

Driving Anglo’s “shrink-to-survive” strategy was the urgent need to pay down its $12,9 billion of net debt, Investec mining analysts noted.

“The strategy outlined amounts to putting the patient in intensive care,” they commented, adding that the news of further amputations in order to improve the chances of long-term survival appeared symptomatic of the low-price environment that was rapidly changing the face of the mining industry globally.

Anglo, which had hundreds of assets before listing in London in 1999, will be retaining only 16 assets in diamonds, platinum and copper, all with a consumer orientation, and is exiting iron-ore, coal, manganese, nickel, niobium and phosphates.

Following the announcement, Johannesburg investors turned towards the exiting Kumba Iron Ore, which saw its share price jump 9,56 percent to R59,15 a share.

Nine of the 16 assets retained are in Southern Africa, made up of the Mogalakwena, Amandelbult, Bafokeng Rasimone, Mototolo, Der Brochen, Modikwa and Unki platinum mines — which last year had a combined production of 1,3-million ounces of platinum metal in concentrate — and the Venetia diamond mine, where R20 billion is being spent on underground development, and the Voorspoed diamond mine in the Free State.

Anglo owns 85 percent of De Beers, which currently produces a third of the world’s rough diamonds by value from mines at Jwaneng and Orapa, in Botswana; Namdeb and Debmarine, in Namibia, and at Victor, in Canada, where the completion of De Beers’ 51 percent-owned Gahcho Kué project is under way.

Anglo’s interests in platinum-group metals (PGMs) are through its 78 percent-owned subsidiary, Anglo American Platinum (Amplats), which is active in South Africa’s rich Bushveld Complex and in Zimbabwe’s Great Dyke area.

Mogalakwena is the highest-margin platinum producer in the industry and operating PGM mines will be supplemented by Amplats’ three smelters at Polokwane, Mortimer and Waterval, as well as its Precious Metals Refinery and Base Metals Refinery, which will continue to process material received from both owned mines and third parties.

Anglo has concentrated its copper business around its interests in two of the world’s largest copper mines at Los Bronces, including the Chagres smelter, and at Collahuasi, both in Chile.

Los Bronces, a 50,1 percent-owned subsidiary, produced 401 700 tonnes of copper last year and 200 300 tonnes of copper from the 44 percent-owned Collahuasi went to Anglo.

On average, the two assets operate at unit cash costs of $1,45/lb and have lives of 25 years and 70 years.

Anglo said its copper portfolio and global exploration platform presented a number of attractive organic growth options from relatively high-grade mineral endowments, such as its feasibility stage Quellaveco copper project, in Peru, as well as long-term growth projects, including further development around Los Bronces, expansion of Collahuasi, development of the copper-nickel-PGM project — Sakatti — in Finland, and a copper exploration position in Papua New Guinea.

Processes are under way for the disposal of Anglo’s 69,7 percent of Kumba Iron Ore, which has the large Sishen and new Kolomela iron-ore operations in the Northern Cape.

The open tender process for the sale of its thermal coal mines in South Africa embraces commercial, empowerment, social, labour and electricity-delivery aspects.

Discussion is taking place with the government, State power utility Eskom and the bidders short-listed, to ensure compliance.

The metallurgical coal assets earmarked for sale in Australia include the Grosvenor/Moranbah mines in Queenland’s Bowen basin.

The Anglo CFO René Médori told journalists that the company would be evaluating Kumba options this week, one of which was for Anglo to sell down its shares or for a demerger of Kumba into a standalone entity.

Mr Médori anticipated a completion of the Kumba transaction “sometime in 2017”.

“For us, creating a great company is about having great assets, running those assets well and having both market and capital discipline,” said Anglo CEO Mark Cutifani, who added that Anglo would be free cash flow positive in 2016 after the benefit of $1,9 billion improvements on 2015, began emerging.

Another $200-million of forecast capital expenditure has been cut and $3-billion to $4-billion is expected from the sale of assets to help reduce net debt to $10-billion by year-end.

‘The medium-term target was to have less than $6 billion net debt, giving a less than 2,5 times ratio of debt to earnings before interest, taxation, depreciation and amortisation.

Discussion has taken place with South32 to dispose of the 40 percent manganese interest in Samancor, and will take place with Glencore and BHP Billiton on exiting the Cerrejon coal business in Colombia.

While the Minas-Rio iron-ore project in Brazil had been declared noncore, that will not stop it from being brought to completion in the next three years, when its disposal will be reviewed against the market conditions prevailing in 2018 /19.

Anglo has received above-forecast prices for the assets that it has sold as part of its first-phase disposal programme and it is determined to take the right time to get value for each asset sold.

“We have made some tough portfolio decisions, but we have to get the debt down. You cannot salami-slice in this market,” Investec quoted Cutifani as telling the Financial Times. — MiningWeekly.

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