After the Bell: A red-letter day for Anglo American

14 May 2024

So, what happens now? Well, interestingly, Anglo’s share price declined after the presentation and it’s hard to know exactly what that means. One possibility is that shareholders think Anglo’s presentation is probably good enough for it to retain its independence.

Tuesday was a red-letter day for Anglo American, SA’s most storied company. Anglo American is, of course, fighting off a takeover bid by the Australian company BHP, which it has rejected and which would see Anglo disappear if it succeeds. On Tuesday, it presented its version of how it intends to proceed — not a small moment in the company’s extraordinary history. I have to say, I thought the presentation was pretty impressive; it was dramatic, there were no sacred cows, the plan for the future of the company was clear-eyed and the numbers appeared to add up. So, all good on that front.

Anglo’s plan conceptually is to get smaller, and focus on its best mines and best minerals. Natch. This means a whole bunch of businesses depart the group in one way or another, including its platinum interests in Anglo Platinum, its diamond interests in De Beers and its Australian coking coal business. What remains is its crucial copper business, iron ore, and the possibility of a big fertiliser business, although, somewhat suspiciously, that project has been pared back.

It’s funny how whenever Anglo is in trouble, it gets smaller. But you know, that’s not a terrible thing. Mondi, Thungela, AngloGold, and even FirstRand bank, which were once part of the Anglo stable, have flourished outside of it as stand-alone companies. They have thrived on the freedom to create their future rather than having to persuade board members in the plush “group” office who know diddly-squat about their division.

Although it’s been trading in a range for years now, Mondi, for example, demerged from Anglo and listed at R63; it’s now selling at R370. Thungela has been on an extraordinary ride, but over the long term, it listed at R30 and is now trading at R135. Even AngloGold, in a much tougher business and over a longer period, is up roughly double from the time Anglo cut the umbilical cord.

So, what happens now? It’s all still a bit touch and go. The essential problem for shareholders is that the BHP proposals and Anglo’s restructuring don’t look that different. Both see Amplats unbundled, both see De Beers as most probably a separate business. In some ways, for shareholders, the BHP bid is the better solution, partly because BHP intends to pick up the capital gains tax and unbundling costs, which will be quite a lump of cash at the end of the day.

Even though the choice is pretty close, BHP has another argument: it would keep the Australian coking coal assets and there would be some industrial efficiency there. On the other hand, I have to say I like that Anglo will keep its South African iron ore assets. As an African, I like that Anglo will stay at least partly wedded to the continent, even though thinking that way is not driven by shareholder value.

BHP can’t keep Kumba because it’s so big in iron ore now that any addition would freak out the Chinese and other competition authorities. It could hold on to Anglo’s Brazilian iron ore business because, unlike Kumba’s ore, most of that is sold in South America.

Poison pill option

BHP is nibbling at some African assets, but you can’t help thinking that it’s less enamoured about African opportunities than it is about assets in the Americas — probably for good reason. One amusing conversation I had this week was trying to imagine what a poison pill option for Anglo would be as a defence. It would involve selling rather than keeping its copper assets, for a start. The company would then maintain its independence because, given SA’s parlous mining environment — now in the bottom 10 jurisdictions in the Fraser Report — nobody would want to buy the company. The SA poison pill writ large!

My interlocutor said that wouldn’t be a poison pill; it would be a plutonium pill - the company would be fried from the outside and the inside. There would be no cash flow to support anything, not even a fancy, overpaid way of life for the managers. Ah … mining. No shortage of straight-talking cynicism.

So, what happens now? Well, interestingly, Anglo’s share price declined after the presentation and it’s hard to know exactly what that means. One possibility is that shareholders think Anglo’s presentation is probably good enough for it to retain its independence. Realistically, BHP management would be strung up by their garters if they overpaid and in this context, where Anglo is not interested in the bid, it would mean going hostile. With so many jurisdictions involved, you can’t do that.

Consequently, because the share price was trading higher than the offer price in the hope that BHP would put even more money on the table, a decline in the share price is partly a recognition that the deal is now less likely. Irony! BHP’s share price went up after Anglo’s presentation, which suggests more or less the same thing. Arbitrageurs think they have got as much upside as they are going to get, so they are getting out.

But for Anglo, there is still a question about why the share price has declined. If you are trying to wow shareholders with your great prospects, it would be nice if the effort were recognised. I suspect that means, despite Anglo’s promise that all the restructuring will be done by the end of next year, shareholders think it will take longer; I’m distinctly in that camp. The deal between De Beers and the Botswana government, for example, is taking an age to complete and it’s crucial for both sides.

I do think most of the commercial arguments are on BHP’s side — it runs its South American copper mines as well as if not better than Anglo and certainly more profitably, for example. But Anglo does have one not insignificant advantage: it’s very adept at operating in tricky jurisdictions. It’s not that BHP is not good at that; the company has mines all over the shop. It’s just that, weirdly, Anglo’s multicultural identity can be kinda confusing, but it does make it just a little more agile than the more distinctly mono culture of BHP when it comes to new projects. Is that just imaginary?

In Anglo CEO Duncan Wanblad’s presentation, you could tell he was trying to communicate this advantage. There is no shortage of copper assets, and there is not even any shortage of capital to build copper mines, he said. The issue is whether you can win a social licence to operate; that’s the tricky bit. I don’t want to overstate this issue, but I do think Anglo for all its other travails — perhaps because of all its other travails — has its nose in front here.

Anyway, we will see in eight days; BHP will either make a formal bid, which will be the equivalent of going hostile, or it won’t. And then we look to the future because, even if Anglo avoids the takeover this time, it will be a smaller company down the line, and even more liable to being swallowed by a bigger fish. More irony!

Until then. Whenever that is. DM

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Poison pill option