An­glo’s exit plan

Thou­sands of jobs will be shed as re­sources gi­ant de­tails strat­egy to un­bun­dle and dis­pose of lo­cal as­sets

CityPress - - Business - JUSTIN BROWN justin.brown@city­

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.

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