Brazilian sale a coup for debt-laden Anglo

ANGLO American made significant inroads into reaching its asset sales target this year by agreeing to sell its niobium and phosphate mining business in Brazil for $1.5bn in cash to China Molybdenum Company, as part of an intense asset sales process to cut debt and return the company to profit.

The sale is the single largest disposal by Anglo since it told the market in December and February of a major restructuring to raise $3bn-$4bn from asset disposals this year to cut net debt of $12.9bn to more manageable levels. Last year, Anglo raised $2.1bn in asset sales and it intends lifting that number as it narrows its focus to diamonds, platinum, and copper.

Anglo said yesterday the sale of the profitable, yet low-key niobium and phosphate business in Brazil had been agreed and the final payment was subject to a number of closing and postclosing adjustments in the second half of this year.

CEO Mark Cutifani said the proceeds would help Anglo to meet its target of reducing debt to less than $10bn by the end of this year.

Anglo American has set itself a $6bn net debt target within the next three or four years.

An analyst said: “If Anglo wasn’t under such tremendous pressure, this would have been the fourth business it would have kept in its portfolio, but I suppose the fact that it makes money and is a good little business made it that much easier to sell in the current market.” The analyst declined to be named for company policy reasons.

The business generated earnings before interest and tax of $119m, compared with $2.2bn for the group.

Anglo’s niobium business grew output a third last year, to 6,300 tonnes, making it the world’s second-largest source of the mineral, which is used in tiny quantities to strengthen steel and to make strong, heatresistant alloys for oil and gas pipes and jet engines.

The niobium unit made pretax profit of $69m last year off revenue of $544m. China Molybdenum has interests in molybdenum, tungsten, and copper, so its main focus will be niobium rather than the phosphate business. The 1.1-million tonnes a year phosphate operation, which made a loss last year, is Brazil’s second-largest producer of the fertiliser product.

Anglo unveiled sweeping changes to the business in February, cutting its asset base to just 16 mines from more than 45; and discarding coal, iron ore, manganese, and nickel mines in Australia, SA, and Brazil.

Analysts had generally expected Anglo to realise between $900m and $1bn for the niobium and phosphate unit, which included mines, processing plants, and untapped mineral deposits, as well as the sales and marketing arms in London and in Singapore.

Investec said it estimated the net present value of the unit at $991m, while Bank of America Merrill Lynch forecast $800m$ 1.1bn, calling the $1.5bn a “very positive outcome”.

Anglo put a value on the business of $1.3bn.

“We see this as a major first step towards delivering on recent company promises,” Investec said.

The sales target Anglo had set would largely be met from the disposals of the niobium and phosphates business, and its Australian underground coking coal mines, it said.

“The outlook for the commodities sector has improved, so it may be easier to sell assets than it was before,” said Investec analyst Jeremy Wrathall.