More State-owned mines as Anglo withdraws from SA?

Anglo123From reading this analysis of the complications involved in Anglo’s proposed ‘divorce” with most of its South African mining operations (read sale of), it soon becomes clear that some deep breathing and patience is required of both government and Anglo executives. The State-controlled Public Investment Corporation, PIC, now has a 13.4% stake in Anglo and its ultimate aim is to make Anglo’s existing assets South African owned and controlled, as evidenced by the doubling of its stake when Anglo share prices were low. However; what the PIC does with its money is too often ideologically-driven and a source of major concern. Witness its’ partial bankrolling of Dr Iqbal Surve’s Independent Newspapers acquisition. The wholesale U-turn in political orientation of those influential newspapers to an unapologetic pro-ANC stance, hardly promotes democracy and independent debate. That’s added to the open question as to whether the print media is a viable medium-term, never mind long-term, investment. While government turns the screws via increasingly complex and arguably economically unworkable mining regulation, acquiring more of the primary source of this country’s wealth may not be the greatest idea. On socialist paper, the people owning the source of any country’s wealth is a noble idea. But even for a socialist, those who actually run the operation are of crucial importance. And so far, there’s not a hell of a lot of confidence to be gained by watching those running South Africa’s state-controlled entities. – Chris Bateman

by Thomas Biesheuvel and Kevin Crowley

(Bloomberg) — In 1917, Ernest Oppenheimer met with South African general and soon-to-be prime minister Jan Smuts to seek his blessing for a new mining company called Anglo American. Smuts wanted one assurance, the company was there for the long haul.

Anglo, along with its sister company De Beers, made Oppenheimer a billionaire and his descendants one of Africa’s richest families. The company became South Africa’s biggest, a conglomerate once spanning brewing, publishing and gold mining. Now a century later, Anglo is trying to cut many of the ties with the country where it all began.

Attendees stand in front of a promotional sign for the Anglo American Plc mining company at the 20th annual Investing in African Mining Indaba in Cape Town, South Africa, on Tuesday, Feb. 10, 2015. Mining companies in South Africa risk missing output targets because of the largest power-plant breakdowns in three years, the biggest mines lobby said in Jan`. Photographer: Dean Hutton/Bloomberg
Attendees stand in front of a promotional sign for the Anglo American Plc mining company at the 20th annual Investing in African Mining Indaba in Cape Town, South Africa. Photographer: Dean Hutton/Bloomberg

While South African mines were cash cows for decades, Anglo now wants to sell them next year to cut debt accumulated during the commodity boom, when it spent $14 billion on Brazil’s Minas Rio. How to package the assets and which to include will be major choices for Anglo, and it faces opposition from a government pension fund that is also the biggest investor. With so much history and national identity wrapped up in the company, it will be a complicated divorce.

“South Africa’s economic development basically began with gold and diamonds, and Anglo was a major part of that,” said Dave Mohr, who helps oversee 110 billion rand ($8 billion) as chief strategist at Cape Town-based Old Mutual Multi-Managers. “Decisions were made to buy very expensive assets at the top of the commodities cycle. That’s their biggest problem and the main reason they’re now having to sell.”

Unwanted Mines

Many of the South African operations weren’t profitable when metal prices were depressed, and allegations of widespread government corruption and uncertainty over mine regulation have long been a concern for investors.

The company will need to balance its goals of raising cash and paying down debt with the demands of the Public Investment Corp., Anglo’s top shareholder and the state-owned manager of government pensions. Already, the PIC has repeatedly disagreed with plans to sell assets piecemeal.

For more on why PIC is pushing for a local mining champion, click here.

Anglo operates 15 mines in South Africa alone, owns controlling stakes in Kumba Iron Ore Ltd. and Anglo American Platinum Ltd. and has other joint ventures.

A worker signals to a haul truck driver at Kumba Iron Ore, the world's largest iron ore mine, in Kathu, Northern Cape Province, South Africa, in this November 15, 2011 file photo. Anglo American said on February 16, 2016 it plans to sell its iron ore, coal and nickel units as part of a sweeping strategic overhaul to cope with a commodities rout that has triggered a fight for survival even among heavyweight miners. REUTERS/Siphiwe Sibeko/Files
A worker signals to a haul truck driver at Kumba Iron Ore, the world’s largest iron ore mine, in Kathu, Northern Cape Province, South Africa, in this November 15, 2011 file photo. REUTERS/Siphiwe Sibeko/Files

Anglo wants to sell its iron ore, coal and manganese operations in South Africa, and retain the Venetia diamond mine and some platinum mines including Mogalakwena, the world’s biggest open-pit platinum mine. That would reduce the country’s Ebitda contribution to 15 percent from 37 percent, according to Credit Suisse Group AG.

Shareholder Pressure

Platinum may be a sticking point. The PIC is pressuring Anglo to include the prized platinum assets in the divestment, according to people familiar with the matter. That sets up a conflict for Anglo’s Chief Executive Officer Mark Cutifani, who considers platinum a core commodity, along with copper and diamonds.

Anglo is leaning toward bundling the South African assets into one listed entity, instead of selling them off piecemeal, according to people familiar with the matter. The miner wants cash from any divestment to pay down debt, said the people, who asked not to be identified because the talks are private.

One option being considering is to combine Kumba, which owns Africa’s largest iron ore mine, with Anglo’s coal and manganese operations, according to the people. Any bundling with Kumba is likely to require wide investor backing, one person said. Anglo shares have quadrupled this year, making a spin off more palatable to investors.

Mark Cutifani
Mark Cutifani

But there are other alternatives. The company could decide to sell the assets separately, a plan that Anglo originally favored.

“We continue to work through all the various options for divesting the thermal coal and Kumba iron ore assets in South Africa, which may include packaging them for sale to create a new South African mining company,” Anglo said in an e-mailed statement.

In Anglo’s favor, as metals prices rebound, there’s less pressure on the company to quickly raise cash, giving it time to find the best solution, said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. He estimates the plan can be found in the next 12 months, even if the eventual retreat takes two to three years.

“All options are on the table for Anglo,” Gait said. “What’s critical is that they don’t remove any options too soon.”