Resurgent Anglo American in strategy jam
WHEN a company quadruples in value over nine months, it is unusual for the biggest investors to say management has the wrong strategy.
But that is exactly what is happening with Anglo American, the mining company that is the UK’s best-performing blue chip stock this year.
In February, Anglo was reeling from a slump in commodities that sent shares to a record low and compounded a mountain of debt. To stanch the bleeding, the company proposed selling more than half its assets that plunged in value. Soon after the plan was announced, prices began recovering, so much that investors urged executives to reconsider.
“The desperation levels are not there anymore,” said Hanré Rossouw, a fund manager at Investec Asset Management, whose investments include Anglo shares. “The strategy was predicated by balance sheet distress and the way to solve it was to sell assets. That became the strategy. That’s the wrong way to go about a strategy.”
Committed to selling
For now, the company remains committed to selling assets. In July, the chief executive, Mark Cutifani said while Anglo was surprised by the rally, it still expected longer-term pressures from too much supply. He is not alone. Last week, rival producer BHP Billiton said despite the gains, iron ore and coal would remain in surplus for the short term.
“We will continue with the programme we currently have,” said Norman Mbazima, the deputy chairman of Anglo’s operations in South Africa. What might change are its “views on value”.
Anglo’s strategy is to exit commodities such as iron ore, coal and nickel to focus on diamonds, copper and platinum. The idea reflects a desire to focus on markets where the company has the best assets in terms of scale and profitability.
After five consecutive years of declines, Anglo shares are surging. They are up 300 percent since the end of January and 272 percent for the year, by far the biggest advance on the FTSE 100 index.
With no deals yet for most of the assets, Anglo wants to sell, investors are calling for management to hold off. Dan Matjila, the Public Investment Corporation’s chief executive, said: “It would be better to hold on until the price improved.”
Ben Davis, an analyst at Liberum Capital, said: “Who would have thought rising prices would put them in such difficulty?”