Anglo American has unveiled a radical self-help strategy which will slim its portfolio down to just copper, iron ore and fertiliser — and could prompt BHP to walk away from its proposed merger if Anglo continues to refuse to engage with it in the next eight days.
Anglo CEO Duncan Wanblad said on Tuesday that the approach from BHP had forced Anglo’s hand on the timing of the restructuring announcement, but emphasised that Anglo had been working since December on the new strategy.
It will shed its platinum group metals, diamond, steelmaking coal and nickel assets to focus on a simpler portfolio and “daylight” its value, particularly that of its copper assets.
Wanblad said the timing forced by BHP’s approach was disrespectful to the SA government, though he made it clear in an interview that he had not accused BHP itself of disrespect, as had been reported earlier.
“I just would have rolled this strategy out at a time that was more respectful to the politicians in SA instead of in a really busy time which is a few minutes before the election,” he said.
BHP CEO Mike Henry countered that his group’s plans had been leaked to the media. Speaking to investors at Bank of America’s global mining conference on Tuesday he said: “Our strong preference was to hold these discussions with Anglo in private. It is rather unfortunate they got leaked.”
Tuesday’s drama came a day after Anglo’s board unanimously rejected a second, higher offer from BHP, which is believed to have been working on plans for a friendly merger with Anglo for four years — but has made it clear that it does not want to overpay or to pursue a hostile deal, and that it does not have to do the deal.
The Australian group, which has its eye on Anglo’s rich copper mines in Latin America, said on Monday it was disappointed that Anglo’s board had chosen not to engage with it. Under London’s so-called “put up or shut up” takeover rules, BHP has until May 22 to submit a formal offer; failing that it must walk away.
But if BHP does go ahead, Anglo’s shareholders will now have to decide whether they will gain more by going with BHP’s leadership and plan.
Wanblad announced a strategic review of Anglo’s portfolio in February after the group reported a sharp drop in its profit, mainly because of plummeting platinum group metal and diamond prices.
Wanblad said on Tuesday that the group would have preferred a few more months to work on its new strategy but would have announced it by the time of the group’s interims later this year.
The roots of the strategy went back to the organisational restructure he rolled out early last year to ensure operational excellence, Wanblad said.
But when diamonds and platinum hit the bottom of the cycle, increasing the group’s net debt by $3bn, it prompted a more far-reaching review, aimed at setting the company up for the next 100 years.
Wanblad said the group expected execution of the new strategy to be substantially completed by the end of 2025.
Regulatory approvals
Anglo plans to unbundle Anglo American Platinum (Amplats) to its shareholders — as BHP has insisted it has to do as a precondition of the merger — but Wanblad said it was an excellent business in its own right. It would be easier for Anglo to gain the regulatory approvals required for a demerger of Amplats than it would be as part of a takeover by BHP. Anglo would be able to do this more responsibly, taking into account employees and communities as well as the government.
Anglo has historically created more than 40 companies by demerging noncore assets, most recently the successful demerger of coal producer Thungela. The plan will also see Anglo sell or demerge De Beers, and sell its steelmaking coal and nickel assets or put these on care and maintenance. It has not yet made a decision on its SA manganese business.
In its new guise Anglo will focus on high-quality, higher-margin, tier-one assets with strong growth potential in premium iron ore and copper, both of which are key to the green transition. It is on a path to increase copper output to more than 1-million tonnes a year from its Quellaveco, Collahuasi and Los Bronces mines, all of which are among South America’s top 10 copper producers.
Anglo will hold on to its 70% of Kumba Iron Ore, which will be its main SA asset after the restructuring, as well as its Minas-Rio iron ore mine in Brazil.
It will save $800m in costs by the end of 2025 and will slow capital spending on its controversial Woodsmith crop nutrient project in the UK while it completes the feasibility study and seeks a partner for the project. It expects the radical simplification of its portfolio will increase its ebitda margin by 15 percentage points to 46% and its return on capital from 18% to 25%.
The Anglo share price fell on Tuesday on news of the restructuring plan, to slightly below the value of the latest BHP offer, which was worth £28 at Tuesday’s market prices.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.