De­liv­ery

Finweek English Edition - - INVESTMENT -

The mar­ket tends to agree. Shares in An­glo are up 24% over the last 12 months, which is smack in line with the per­for­mance of the shares in Rio Tinto and BHP Bil­li­ton, also both up a quar­ter.

Ac­cord­ing to one an­a­lyst, the sale of the plat­inum as­sets alone would add about 27% to An­glo’s re­turn on cap­i­tal em­ployed (ROCE), the met­ric that Cu­ti­fani has pledged to ad­dress first and fore­most. He is aim­ing for a 15% ROCE by 2016, which would re­quire a doubling in 2012’s pre-tax prof­its to $7.3bn.

The re­cent rise in the price of nickel, ow­ing to a ban on ex­ports from the metal’s largest pro­ducer, In­done­sia, also raises the chance that An­glo will dis­pose of its Barro Alto as­sets which it wrote down in Fe­bru­ary for $700m, and that Cu­ti­fani said he might sell. “It’s a good time to buy the as­sets when the ma­jors think it’s not strate­gic, and into a ris­ing price en­vi­ron­ment that gen­er­ates the cash you’ll need to in­vest in the project,” said Paul Gait, an an­a­lyst for San­ford C Bern­stein.

Ear­lier t his month, t he group an­nounced plans to sell its 50% stake in the La­farge Tar­mac joint ven­ture, which is ex­pected to gen­er­ate $1.5bn, funds it said it would pump into re­duc­ing debt.

Out­side of re­struc­tur­ing and as­set sales of un­prof­itable mines, how­ever, there are a few other rea­sons to be cheer­ful of An­glo’s prospects un­der Cu­ti­fani. One is the com­mis­sion­ing of its Brazil iron ore project, Mi­nas Rio.

An­glo heav­ily over­spent on Mi­nas Rio, hav­ing trailed its peers in find­ing iron ore pro­duc­tion to sat­isfy Chi­nese in­dus­tri­al­i­sa­tion. In Jan­uary 2013, An­glo im­paired Mi­nas Rio by $4bn and set aside an­other $600m for con­tin­gen­cies. It was a heavy blow to then CEO Cyn­thia Car­roll – a turn of events many be­lieved sig­nalled the end of Car­roll’s time at An­glo.

Mi­nas Rio will have ab­sorbed about $8.8bn in cap­i­tal amid ex­ten­sive de­lays and budget over­runs. A new dead­line for the mine was set for De­cem­ber, which an­a­lysts be­lieve An­glo will meet. If it does so, it will sig­nal the end of the group’s high cap­i­tal ex­pen­di­ture phase, not to men­tion the fact that the mine will start gen­er­at­ing much-needed cash f low.

An­glo has guided the mar­ket to­wards net debt of be­tween $14bn to $15bn against liq­uid­ity of $18bn, but the in­ten­tion is to take the debt fig­ure in the medium term down to $10bn from $12bn, a goal that pro­duc­tion from Mi­nas Rio, as well as the com­mis­sion­ing of the Grosvenor coal project in Western Aus­tralia, can as­sist in do­ing.

Said an an­a­lyst: “We think that the con­ver­sa­tion be­tween in­vestors and man­age­ment will now shift from iden­ti­fy­ing the prob­lems and plans to de­liv­ery and that this is the next stage for An­glo, start­ing with Mi­nas Rio and plat­inum.”

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