Anglo’s exit plan
Thousands of jobs will be shed as resources giant details strategy to unbundle and dispose of local assets
Anglo American this week moved to exit local assets as it intensified the most radical restructuring in its almost 100-year history, as part of its battle to survive amid a drastic drop in commodity prices due to the slowdown in China. In South Africa, the group will sell its 10 coal mines, its iron ore mines and its 40% stake in manganese producer Samancor, and will cut jobs at its local diamond mines.
Anglo chief executive Mark Cutifani, who joined the company in 2013, this week said the group was conducting an “open tender process” to sell its local coal mines.
All potential buyers had to be fully empowered and meet a number of other requirements.
“We are in conversation with Eskom and the government,” he said, regarding the sale of the coal mines.
Anglo’s 70% stake in Kumba Iron Ore could either be sold down or unbundled.
Investors are concerned about Anglo’s restructuring plan, saying the group has moved too slowly to implement one.
In an interview with the Financial Times this week, Cutifani said Anglo had been too late in selling underperforming mines during the commodities downturn.
Minister of Mineral Resources Mosebenzi Zwane said this week: “The sale of assets allows for new black economic empowerment champions to participate in this industry, thus further driving our broader socioeconomic objectives, including economic transformation.”
Already there are buyers eyeing the assets that Anglo wants to sell.
South32, which owns 60% of Samancor, is keen to buy Anglo’s Samancor stake.
Mike Fraser, South32’s Africa president, said: “We know the assets well and ... they are the best in the industry ... We would be a buyer if the price is right.”
At the same time as Anglo is selling assets, it is adding to the thousands of local jobs it has already cut.
De Beers, 85% owned by Anglo, this week advised its employees that up to 310 jobs could be cut, said Tom Tweedy, a De Beers spokesperson.
Anglo’s move to exit local assets follows in the footsteps of other mining majors.
Last year, BHP Billiton spun off its South African assets into South32 and Glencore placed its Optimum coal mine into business rescue after a dispute with Eskom.
The key driver for Anglo’s sales is to firm up its financial position, which has been battered by four consecutive years of losses, including a record loss of $5.624 billion (R86.7 billion) in 2015.
Anglo’s accumulated losses total $10.6 billion over the four years from 2012 to 2015.
Cutifani said the group would narrow its focus to just three commodities – diamonds, platinum and copper – from nine.
“Cutifani has had a tremendously difficult job. He has been fighting fires since he arrived at Anglo,” said an analyst, who wished to remain anonymous.
The group will slash it assets to 16, down from 65 that the group held in 2014.
This is even more radical than the restructuring Cutifani announced in December, when the group’s portfolio was to be cut to about 25 assets.
Of the 16 core assets, only seven of these mines – two diamond and five platinum mines – will be located in South Africa, down from 26 at present.
“Anglo will no longer be a diversified mining company, and it is certainly going to be a lot smaller,” said an analyst. This year, Anglo is planning to sell assets worth between $3 billion and $4 billion, from net sales of $1.7 billion last year.
The group cut its net debt to under $10 billion from $12.9 billion at the end of 2015 with a medium-term debt target of $6 billion.
The planned asset sales and restructuring will see Anglo’s staff count drop from 128 000 at the end of last year to 50 000.
This year, Anglo will cut its capital expenditure to less than $3 billion, down from $6 billion in 2014.
Last year, the group halted its dividend.
Anglo’s global mining rivals are also under pressure. Glencore has halted its dividend, sold assets and issued shares for cash to secure its financial position.
Rio Tinto this month also reported a loss for last year and indicated that it could cut its dividend.
There is speculation that BHP Billiton will cut its dividend too, later this month.
Anglo’s share price has underperformed its major competitors. Over the past year, its share price in London is down 63%, while Glencore has fallen 57%, BHP Billiton is 47% lower and Rio Tinto has declined by 38%.
Adding to Anglo’s woes was that all three major ratings agencies – Standard & Poor’s, Moody’s Investors Service and Fitch – downgraded the group’s credit rating to junk status.
“[Anglo faces] high execution risk associated with restructuring plans as challenging market conditions are likely to slow the pace of the portfolio transformation,” Moody’s said.
Cutifani said Anglo was hoping to get its investment grade rating back by midyear.