Anglo is getting trimmer, as it promised. The pressure applied by what Xstrata continues to characterise as a friendly, cuddly sort of takeover bid, is clearly bearing early fruit.
Anglo American has told the market it will sell a bunch of non-core assets, in line with earlier promises to strengthen its rickety balance sheet. The businesses for sale include steel producer Scaw Metals, Brazilian phosphate miner Copebras, Brazilian ferroniubium producer Catalao and Tarmac, which is Britain's largest supplier of aggregates to the construction industry. Together these were responsible for about $3 billion in attributable profits for the last half year, or some 11% of EBITDA for 2008.
The next days and months will see whether this is a good time for Anglo to be shedding weight, and whether such assets have any allure. The company had earlier promised savings of $2 billion by 2011, saying a lot of that money would be returned to investors. The latest streamlining is obviously designed to enable Anglo to do just that, but it also suggests that it is feeling the heat from the global downturn.
When rival miner Xstrata dropped its hostile bid for Anglo last week, it prompted the metals giant to say it was confident of its future as an independent company. But analysts now say the pressure is on Anglo to unlock value from within, in part to appease shareholders angered by a missed dividend payment. Xstrata’s bad-tempered bid explicitly did not increase shareholder value, despite the promise of forming a mining titan worth between $70 billion and $100 billion, putting it behind BHP Billiton and Rio Tinto. So now the pressure is back on chief executive Cynthia Carroll to turn things around at good ol’ Anglo American Plc.
Anglo is no stranger to radical change. In 2005, the company rationalised its structure to focus on mining, which included selling down its minority holding in AngloGold Ashanti and spinning off its paper and packaging interests by listing Mondi separately. In 2007, it acquired stakes in the Michiquillay copper project in Peru and MMX's iron ore project in Brazil, followed up by two more iron ore holdings in the Brazilian Minas-Rio project and a 70% stake in Brazil’s Amapá mine. And while its core commodities business has been hard hit by the global recession, the latest announcement comes at a time when commodities look to be making a softish rebound. The company’s third-quarter copper production from a year ago rose 13%, with iron ore up 16%, and refined platinum production going north 16%. Even rough diamonds have seen a resurgence, with production up 43% compared to the second quarter 2009. But, while this mini-commodities boom may be because China's economy has expanded 8.9 percent in the third quarter, some analysts see China’s growth spurt to be a result of some $700 billion in government stimulus spending, and not a real indicator of things to come.
The latest paring of assets is no doubt meant to restore some focus after the heady run of the commodities boom, and the general good health of world stock markets. While the past few years have not been particularly kind to commodities giants, Anglo raised $671 million in the third quarter from the sale of its stake in Tongaat Hulett, and aluminum processor Hulamin. Whether shareholders will see any of the money is something the market will watch very closely.
By Mark Allix
Read more: BusinessWeek