Wood Mackenzie warns about risks involved in Anglo’s strategy shift

Anglo American’s strategic shift to focus solely on copper and iron ore, as revealed in a Wood Mackenzie report, follows the rejection of BHP’s bid proposal. The move aims to maximise returns and future-proof the business, aligning with industry trends. While it could generate up to $25 billion through divestment, execution risks remain. This decision may also make BHP’s takeover bid more appealing to regulators and shareholders, potentially leading to increased pressure for a revised offer.

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Issued by Wood Mackenzie

LONDON, 14 May 2024

Wood Mackenzie report says decision to focus on copper and iron ore could open door for increased bid from BHP 

Anglo American has accelerated its portfolio planning in the wake of rejecting BHP’s second bid proposal of US$42.2 billion (£27.7 per share) in a move that will take it from being the most diversified tothe most concentrated major miner according to new research by Wood Mackenzie. 

The report ‘Anglo American to rationalise all but copper and iron ore production’ states that decision to take a strategic focus on the highest return commodities – copper and iron ore – mirrors similar moves by BHP and Rio Tinto in looking to future-proof the business. 

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“We believed that a major reshuffling of Anglo American’s portfolio was inevitable,” says James Whiteside, Metals and Mining Corporate Research Director at Wood Mackenzie. “But opting to divest or demerge whole segments of its portfolio does align with the company’s new strategic priorities.”   

The report adds that Anglo American’s iron ore and copper segments have been outsized cash generators, delivering 58% of the company’s underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) over the last five years.  

“Looking forward, even without fresh investment, copper will overtake iron ore in cash generation and this would allow Anglo American to use the proceeds to focus on brownfield growth at these core assets,” Whiteside says.   

Wood Mackenzie research indicates that Anglo American could aim to realise up to US$25 billion in asset value through divestment or demerger (gross of exit costs) of its other commodities assets such as platinum, steelmaking coal and nickel over the next few years. This represents a potential uplift of US$9.1 billion over Wood Mackenzie’s base net asset value (NAV).

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However, the report also warns that executing the plan will not be easy and added that by showing a willingness to deconstruct the company, Anglo American has given credibility to BHP’s proposed takeover potentially making it more palatable to regulators in key markets such as South Africa.

“Anglo American’s strategic plan is undoubtedly bold and shedding the equivalent of 39% of 2024 earnings would be transformational,” Whiteside concludes.

“However, execution risk is substantial and borne entirely by Anglo American shareholders so if an increased offer from BHP did materialise, it could be seen as a more straightforward option for shareholders.”

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