Copper focus of Anglo radical overhaul

There are also plans to exit platinum and coal mining through large-scale restructuring

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Anglo American PLC will exit the diamond, platinum and coal mining industries in a major restructuring aimed at defeating a £34 billion (US$43 billion) bid from rival BHP Group Ltd. and turn itself into a copper giant.

Anglo’s hand was forced by BHP’s approach – which it has rejected twice – but the move is also a response to shareholder pressure to divest less profitable businesses and focus on the copper assets where the industry is jealous of. What remains is a much simpler business – and potentially more attractive to suitors.

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The radical change outlined by Anglo chief executive Duncan Wanblad is intended to create a company much like the one his rival CEO Mike Henry proposed. With both men having a similar view of where value lies in the vast Anglo empire, shareholders will now have to decide who they think can perform best.

Anglo is pinning its hopes on shareholders backing its plan – and backing management to implement it, rather than pushing for an offer from BHP. Investors see copper as the crown jewel for its role in the energy transition, and today’s move meets what some of them were asking for. Activists Elliott Investment Management are among Anglo’s shareholders.

“There is still debate about whether this really offers shareholders more than BHP’s enhanced offering,” said Dawid Heyl, Cape Town-based portfolio manager at Ninety One, a top shareholder. Heyl said that while it was a robust plan, it would create a shrunken Anglo that would “also be attractive to others.”

Anglo shares fell 2.5 percent to £26.38 in London trading, below the £27.53 offered by BHP, in a sign that investors see a lower probability of a successful bid from BHP. Amplats, as the platinum trade is known, fell by as much as 10 percent in Johannesburg.

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Until BHP

It is now up to BHP to decide how to respond. Two bids were rejected, although the improved bid failed to address one of the key obstacles: Anglo said BHP’s condition to spin off South African assets before the takeover was unworkable. With Anglo proposing to spin off Amplats, this could strengthen BHP’s argument that this is possible.

“The outcome of Anglo’s strategic review will not have changed BHP’s plans, but they are likely to be actively assessing where they stand now in light of this,” said Lachlan Shaw, an analyst at UBS Group AG.

Anglo will now focus on copper mines and iron ore, the two biggest and most consistent earners and the businesses to which BHP is most attracted. Perhaps controversially, it is also sticking with its Woodsmith fertilizer project in the north of England, which some investors have urged to stop. Still, it will drastically reduce spending there.

The company will spin off or sell its diamond business from De Beers, spin off its Anglo American Platinum Ltd. unit and sell its coking coal mines in Australia.

The company will also sell or close its relatively small nickel operations in Brazil.

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At Anglo, which has always been a hodgepodge of commodities, moves to dramatically downsize and simplify operations have been years in the making. Yet BHP’s approach acted as a catalyst for the company to accelerate the decision-making it had been working on for years.

Unpolished De Beers diamonds.
Anglo American’s massive restructuring plan includes ending its nearly century-long partnership with diamond trader De Beers. Photo by Simon Dawson /Bloomberg

Getting rid of Amplats and De Beers marks a turnaround from less than a decade ago, when Wanblad’s predecessor planned to make them cornerstones of the company.

However, Wanblad admitted today that they are simply too volatile. When they’re good, they’re very good, but when they’re bad, they drag down the entire company, eroding the returns shareholders get from the commodities they really covet, like copper. And the past year has been particularly difficult for both of them.

De Beers – despite its trophy status – looks increasingly out of place within the Anglo stable. The diamond market has become increasingly volatile in recent years and fluctuates between boom and bust. The challenges posed by changing consumer habits require increasing spending on things like advertising, an area that is outside the comfort zone of many mining investors.

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It will break the nearly century-old bond between the two companies, with Anglo first becoming a major shareholder in 1926. Sovereign wealth funds have shown interest in the legendary diamond producer in the past.

Don’t leave South Africa

Anglo will also try to exit Amplats, as its platinum unit is called. The company is currently listed in South Africa, with Anglo as the majority shareholder. Its coking coal operations, which are next to BHP’s mines, will also be sold and Anglo says an approach has already been received.

While Anglo’s new plan has similarities to BHP’s plan, Wanblad was keen to point out that they would not be leaving South Africa completely. The company will retain its iron ore subsidiary Kumba. BHP wanted Anglo to divest its South African assets before the takeover.

“They let us do the work and then they leave,” Wanblad said. “We are staying in South Africa, which is a unique difference between what we and BHP are proposing to do.”

That may have made a difference to the South African government, as the new plan has already received a warmer welcome than BHP’s proposal.

Anglo will also slow spending on a $9 billion fertilizer mine in northern England that has been a focus for investors and analysts pushing for a review.

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The company — which spends about $1 billion a year on the massive Woodsmith mine — will cut spending to about $200 million by 2025, and plans to spend none in 2026. It will also seek to establish one or more strategic partners.

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Investors fear the mine will produce a little-known fertilizer product called polyhalite, and that Anglo will have to create a huge new global market for it almost from scratch.

—With help from Mark Burton and Paul-Alain Hunt.

Bloomberg.com

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