In a high-stakes, R700bn-plus potential tie-up between Anglo American and BHP, the Public Investment Corporation (PIC) has signalled strategic patience, eschewing a knee-jerk reaction in favour of a decision that aligns with the best interests of its clients and SA’s financial markets.
This is according David Masondo, chair of the PIC, the biggest shareholder in Anglo whose stance on the transaction will be the bellwether to the biggest mining deal in a generation, in an interview with Business Day on Tuesday.
“The PIC will assess any offers that are presented to shareholders and will urgently engage directly with Anglo-American and BHP. As a long-term investor, any transaction will be assessed to ensure value creation for clients while taking into account socioeconomic impact,” said Masondo, who is also deputy finance minister.
“The mining sector is a critical part of our economy, impacting a wide variety of stakeholders. Therefore, new opportunities that may arise in the sector need to take these factors and long-term sustainability into account, including the depth and health of financial markets and the SA economy.”
The PIC, the largest investor in the JSE, has R2.6-trillion in assets under management. It owns about 8% of Anglo, whose history in SA stretches back to the 1900s and its fortunes are intertwined with the fortunes of the economy.
The asset manager delivers investment returns as per the mandates of its clients: the Government Employees Pension Fund (GEPF), the Unemployment Insurance Fund and other public sector clients.
The GEPF, which accounts for 87% of the funds the PIC manages, is also its most important client, as it controls the pension savings of more than 1.2-million public servants.
Cosatu, the biggest union in the public sector, has already urged the PIC and other SA investors to reject a possible BHP-Anglo tie-up, saying such a deal would not be in the national interest, according to a report by Bloomberg on Tuesday.
Workers in 2019 for the first time in the PIC’s history got a seat at the table of the fund manager’s board. The 15-person board includes general secretaries of three unions, Zola Saphetha of the National Education, Health and Allied Workers Union; Mugwena Maluleke of the SA Democratic Teachers Union; and Ivan Fredericks of the Public Servants Association.
Cosatu’s comments are more or less in line with the thinking of mineral resources & energy minister Gwede Mantashe, who has voiced his opposition for a deal. It has prompted BHP executives to send a high-level entourage to convince SA investors about the strategic and commercial merits.
But Anglo rejected a $39bn (R722bn) takeover proposal on Friday, saying the bid was “opportunistic” and significantly undervalued it and its prospects.
Anglo’s position tests BHP’s determination to bulk up its copper portfolio in a world that is transitioning rapidly into renewable energy sources, where the metal is guaranteed an important role.
It is expected that BHP will return with an improved offer. The “Big Australian” has until May 22 to lodge a formal bid for Anglo. Two of Australia’s highest-profile investors this week urged BHP to make an improved bid for Anglo, saying that value would be created by combining BHP and Anglo’s copper assets, in particular.
One of the sticking points in BHP’s offer is its plan to exclude Anglo’s SA assets in a scenario that would see Kumba and Anglo American Platinum (Amplats) hived off and their shares distributed to Anglo shareholders.
Exclusion
BHP has shrugged off criticism that the exclusion of Kumba and Amplats was a vote of no confidence in SA. Reuters on Tuesday reported that BHP’s top brass was adamant that Kumba and Amplats would not form part of any possible deal.
Anglo owns nearly 80% of Amplats and about 70% of Kumba. Both companies have recently restructured their operations, in a process that is likely to see thousands of workers lose their jobs as the groups cut costs.
BHP’s pursuit of Anglo comes just months after the latter said it was “systematically reviewing” all its assets in conjunction with detailed mining plans.
“We will then take further actions that are absolutely going to be needed to ensure that every asset is competitive and we are working towards positioning most of our key assets in the bottom half of their respective cost curves,” Anglo CEO Duncan Wanblad said in February. “As we continue to go through these assets systematically, we also have to assess the role of every asset in the portfolio. As we go through that process I want to assure you that nothing is off the table.”
The group’s year to end-December results took a pounding from a plunge in the prices of platinum group metals (PGMs) and weak demand in diamonds, which saw the two commodities contributing to a $5.5bn drop in revenue in the year under review. This, coupled with weak demand for diamonds in the key markets of the US and China, saw Anglo write down $1.6bn in De Beers’ value
The group’s copper and iron businesses were star performers, contributing $7.2bn, or 72%, to earnings before interest, taxes, depreciation and amortisation. The debt position in the period rose $3.7bn.
JSE CEO Leila Fourie last year told Business Day that as a sign of confidence in SA’s capital markets, BHP undertook a share consolidation that saw the resources giant keep its secondary listing on the local bourse ahead of the London Stock Exchange.
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