Nimble Anglo keeps market guessing
Is three-minerals plan still driving miner?
At the end of 2015, Anglo American CEO Mark Cutifani stood in front of investors and told them the 100-year-old company’s longterm strategy was to focus on three minerals: copper, diamonds and platinum.
Now, with a new shareholder pouring cold water on that plan and endorsing Anglo’s current portfolio of 37 assets — from 68 — some analysts believe it has quietly (yet officially) abandoned the three-minerals strategy. Others think it remains part of Anglo’s long-term plans.
Perhaps Anglo owes the market clarity. In June this year the company said it would no longer sell assets — such as Kumba Iron Ore and its coal assets — in what the market had termed a fire sale as the company needed to cut debt.
Sources close to the company said Anglo no longer needed to sell because the company’s debt had been reduced to $6.2-billion (R88.7-billion) from $12-billion. Sources said it was important to know that the strategy was devised to deal with the debt issue.
And even if commodity prices fall in future, assets such as Kumba Iron Ore, which has been restructured to reduce costs, will be able to withstand the low iron-ore cycle. In addition, Kumba, which was initially not considered a first-tier asset by Anglo, now has the potential to be one if it continues to reduce costs. In fact, in the annual results to the end of December 2016, iron ore and coal were the star performers.
Sources said the strategy was now focused on retaining core assets. The sources added that by reverting to the 2014 strategy of focusing on core assets instead of core minerals, Anglo now had better relations with its two biggest shareholders, Indian mining mogul Anil Agarwal and the Public Investment Corporation with its 14.5% stake.
However, the sources said there would be more certainty on the long-term strategy when Anglo releases its 2017 financial report in February next year.
When Agarwal increased his stake in Anglo to 20% in September, it became clear to the market that he was not going to be just a passive shareholder.
Agarwal, who shared his views on Anglo in an article in the Financial Times a few weeks ago, said he liked Anglo’s current structure. Argawal did not respond to requests for an interview with Business Times.
Izak van Niekerk, an analyst at Mergence Investment Managers, said Agarwal could not change Anglo’s strategy despite his stake and would only have some influence if or when he took a seat on the board.
He said Anglo’s long-term strategy was unclear on whether the focus on three minerals had been scrapped or not.
“It’s just off the table for now. It’s because of the commodity prices. If someone would come with a great offer for Kumba, they would sell,” he said.
Ben Davis, an analyst at Liberum, said Agarwal’s plan for Anglo was unclear, particularly as no one was entirely convinced that his investment in the business was not just for his family investment vehicle, Volcan. This comes after he increased his stake from 12% to 20% in October.
“Anglo is in a much better place than two years ago. They don’t have a gun to their head. They can’t get anyone to force a breakup bid when they are making this much
Cutifani doesn’t have to be married to his strategy forever Makwe Masilela Analyst at BP Bernstein
cash,” Davis said.
Anglo probably still believed that, longer term, its three core minerals strengthen the investment case for the company.
Makwe Masilela, an analyst at BP Bernstein, concurred that Anglo’s decision to stop the sale of its remaining iron-ore and coal assets was the company’s short- to mediumterm plan, but, longer term, the three core minerals remained.
It would be shortsighted of Anglo to commit to a strategy of three minerals, given the volatility of commodity prices, Masilela said.
Cutifani “doesn’t have to be married to his strategy forever. If in the long term it starts becoming a loss-making business, he should be able to say, let’s get rid of this, it’s draining cash.”
Masilela attributed Agarwal’s support for Anglo’s portfolio to the billionaire’s need to show that he was bullish on the iron-ore price since he too owns iron-ore assets, in Vedanta Resources, which he chairs.
Another analyst, who did not want to be named, said that in the past companies were told the bigger you were, the better. But then the narrative changed to “You’re too big, you need to be smaller”. It seemed the narrative had gone back to being “the bigger the better” — so Anglo probably did not want to shrink more than it had already.
With volatile commodity prices, said Peter Major, an analyst at Cadiz Corporate Solutions, no one should have a long-term strategy, “because one never knows whether what they say is what they mean”.
“Harry Oppenheimer had a long-term strategy that he inherited from his dad, but the world was different then. You could bank on a stable economy, bank on a stable government and bank on gold. Anglo was built on long-term strategies and it worked, but the world is different now,” Major said.
When Cutifani announced the focus on three minerals in 2015, he was under pressure to reduce debt.
“He told people what they wanted to hear. As soon as commodities went up, he said, ‘Why do I have to sell? This stuff is doing great.’ ” Anglo’s apparent continued commitment to the three-minerals strategy put investors at ease, Major said.
He said that if shareholders did not like the three-minerals strategy. Cutifani would change the strategy again.